IDIS 424 Lect 1-4 Flashcards
Exam 1
What is Purchasing?
A value-added function with the ability to leverage supply base capabilities.
Why is Purchasing Important?
It impacts the quality and reputation of a product
ex. Samsung Battery
Leverage Principle
Relatively small cost reductions (easy to achieve) have a greater impact on profits than other fields
How do you decrease Purchasing Cost?
- Bidding
- Supplier Relationship Development
- Vendor quantity discounts
- Selection of Transport Modes
- Supplier Selection
Purchasing
A Functional group (formal entity) as well as a functional activity (buying goods)
Five Rights
Right quality, right quantity, right time, right price, right source
Supply Chain
a set of three or more organizations linked by 1 or more of the upstream or downstream flows of products, services, finances, and information from a source to a customer
Supply chain management
Proactive management of the 2-way movement and coordination of goods, services, information, and funds from raw materials through end user
Supply Continuity
Uninterrupted flow of high-quality material to support the operational requirements of internal customers
Purchasing Objectives
- Supply Continuity
- Manage the Purchasing Process Efficiently and Effectively
- Develop Supply Base Management
- Develop Strong Relationships with Other Functional Departments
- Support Organizational Goals and Objectives
- Develop Integrated Purchasing Strategies that Support Organizational Strategies
Manage the Purchasing Process Efficiently and Effectively
Make best use of limited resources to satisfy the need of internal customers
Develop Supply base Management
Improve existing and develop new, reliable, high-quality sources of supply base
Develop Strong Relationships with Other Functional Departments
Two-way communication, positive and problem solving relationship
Support Organizational Goals and Objectives
Should be developed as a core competency to achieve the organizational goals and objectives
Develop Integrated Purchasing Strategies that Support Organizational Strategies
Purchasing should be part of the strategic team and its acts should be in alignment with the company’s goals
Functional Responsibilities (or legitimate authority) of Purchasing
- Spend analysis
- REVIEW Specifications and FORECASTING
- EVALUATE and SELECT Suppliers
- Act as a PRIMARY CONTACT with suppliers
- Determine the Method of AWARDING PURCHASE CONTRACTS
- Cost management (Total cost of ownership)
- Supply Relationship Management
Six major Tasks in the Purchasing Process
- IDENTIFY user requirements
- EVALUATE potential suppliers
- Competitive bidding or negotiation and supplier selection
- Purchase approval
- Release and receive product or service
- Update supplier performance scorecard
Purchase Requisitions
- DESCRIPTION of required material or service
- Quantity and Date Required
- Estimated unit COST
- Account to be charged
- Date of requisition
- Authorized Signature
Evaluate Potential Suppliers
- Existing Supplier
- New Supplier
RFI
Request for Information
RFP
Request for Proposal
RFQ
Request for Quotation
When is competitive bidding preferred?
- Volume is high
- Clear specifications/requirements for product
- Marketplace is competitive
- Buyer does not have a preferred supplier for that item
When is Negotiation preferred?
Any situation that is not favorable for competitive bidding ( new, technically complex items)
Raw material
petrol, coal, lumber
Semi-finished Products
Subassemblies, semi finished products
Finished Products
Complete, saleable product
MRO
Maintenance, repair and operating items
Classifications of Goods or Services:
- Production Support Items
- Services
- Capital Equipment
- Transportation and 3PL providers
Production Support Items
Packaging materials, tapes, glues, boxes
Services
Payroll services, lawn care, snow removal
Capital Equipment
Production machinery, material handling equipment
Transportation and 3PL providers
Logistics services, management of inbound and outbound materials
Purchasing Integration
Process of bringing together different groups, functions or organizations to work jointly on a common business-related assignment
Collaborative Buyer-Seller Relationships
- Mutual Trust
- Long-term Contracts
- Joint Development of Technology
- Joint Cost Reduction Efforts
Obstacles to Closer Relationships
- Confidentiality
- Limited Interest by Suppliers
- Legal Barriers
- Resistance to Change
Push Technique
Make all we can just in case.
Anticipated Usage
Pull Technique
Make what needed when we need it
Lean SCM
produces or provides only what is needed and when it is needed
Just-In-Time Supply Scheduling
Scheduling where the entire supply channel is synchronized to respond to the requirements of customers
Just-In-Time Supply Sched Characteristics
- Close Relationships with FEW suppliers
- Information is shared btw suppliers and buyers
- Frequent production/purchase in small quantities with resulting minimal inventory levels
- Elimination of uncertainties
- High quality goods
JIT drawbacks
- Does not handle unexpected demand
- Risk of running out of stock
- More planning required
Centralized Purchasing
Corporate HQ has the authority for purchase expenditures
Adv to Centralized Purchasing
- Leverage Purchase Volumes
- More uniform consistent performance standards across all locations
- Reduce duplication of purchasing effort
- Development of specialized expertise
Decentralized Purchasing
Business branches have authority for purchase expenditures
ADV of Decentralized purchasing
- Speed and Responsiveness
- Understanding unique operational requirement
Center-Led Purchasing
Combines central for common purchases and decentralized for unique requirements
Factors that influence Centralized or Decentralized structure
Overall Business Strategy
- Comp adv built on efficiency moreso than competition –> more centralized
- Built on responsiveness to customer needs –> More decentralized
Similarity of Purchases
- Purchases are fairly similar –> More Centralized
- Purchases are very different across business units –> More decentralized
Types of Strategies
- Corporate Strategy
- Business Strategy
- Functional Strategy
Corporate Level Strategy
What’s the firm’s business? Nokia partnering with Microsoft to make a phone
Business Level Strategy
How does the firm compete? Product differentiation. iPad lighter, thinner, better software, etc.
Functional Level Strategy
How do the functions of the firm support the firms business level and corporate level strategies? Increase market share. Identification of new market segments, brand identification programs, quality assurance
Scope of Business
Refers to the breadth of activities your business engages in (having a bar and catering vs a business who doesn’t)
Translating Objectives to Goals
Objectives are broad whereas goals are specific, measurable, focused and will have a time-frame
Category Strategy
Which suppliers should provide a group of products or services in the form of the contract, the supplier performance measures, price, quality, and delivery arrangements
Routine products
cleaning materials, scraps, office supplies / Automate requisitioning process, minimize admin costs, little negotiation
Leverage products
Concrete, foodstuff, etc. / Promote competitive bidding
Bottleneck Products
Equipment spare parts, custom made materials / Widen specification, increase competition, develop new suppliers, attempt comp bidding
Critical Products
OLED Screens / Heavy Negotiation
