L4M6 Chapter 1 Flashcards
What is a value chain?
A set of primary and support activities and processes that an organization must undertake in order to create value for its customers.
What are primary activities?
Porter’s value chain - Activities which contribute directly to the creation of the product or service such as: Inbound logistics, Operations, Outbound logistics, Marketing and sales and After-Sales service
What are support activities?
Porter’s value chain - Activities which support the business in its efforts to become more efficient such as: Infrastructure, Human resource management, Technology, Procurement
What are the five rights of procurement?
Place - achieving delivery to the right place, packaged and transported in a way that ensures their safe arrival.
Quality - ensuring products and services are of the right quality and fit for purpose.
Quantity - purchasing the correct quantities
Time - ensuring products and services are delivered on the correct date and at the correct time
Price - achieving the right price for products and services
How can procurement add value to organizations?
Selecting a supplier and negotiating the best deal
Developing relationships with key suppliers to ensure continuity of supply
Managing quality of inputs by monitoring supplier performance
Managing inventory and stock control
Supporting the other support functions
What is supplier relationship management (SRM)?
Process of identifying all interactions with key suppliers and then managing them in a way that increases the value of the relationship for both parties
What is a supplier relationship spectrum?
The ‘relationship spectrum’ sets out a continuum (on going) of relationships from adversarial/‘transactional’ to a genuine collaborative/co-destiny/‘partnership’.
What are the 9 types of relationships in a relationship spectrum?
Adversarial Tactical Arms length Transactional Closer tactical Single-sourced Outsourced Strategic alliance Partnership Co-destiny
What are the five competitive forces in Porter’s Five Forces Model?
Rivalry in the market place Threat of new entrants/barriers to entry Threat of substitutes Bargaining power of supplier Bargaining power of buyer
What are the different types of markets?
Monopoly - one supplier in the market place - Supplier power is dominant, Buyer power is low e.g. utilities water.
Oligopoly - few large suppliers in the market place - Supplier power is dominant, Buyer power is low e.g. oil & gas co.
Imperfect competition - number of suppliers in the market place but products are heterogeneous (diverse in character or content) - Supplier power weak, Buyer power Strong
Monopolistic competition - number of suppliers in the market offering similar products but not perfect substitutes - Supplier power strong, Buyer power weak
Perfect competition - large number of suppliers in the market offering identical products (products are homogeneous) - Supplier power low, Buyer power very high
Monopsony - one buyer in the market place - Buyer power is dominant.
Senior managers of Company A are reconfiguring their value chain to sustain their cost advantage. They assume that each activity within value chain are independent from the others. Is this assumption true?
No, because their are linkages between activities
Lene Group is planning for a Supplier Development Programme (SDP) initiative, which aims at all small and medium sized suppliers with development potential, operating in areas of strategic interest to the Group. Lara is assigned to identify the objectives and benefits that the Group and attending suppliers may reap from the initiative. Which of the following statement is true about supplier development programme?
Supplier development programme should be capable of being assessed in terms of quantifiable business benefits
What is the most appropriate type of relationship for a 12-month supply contract of stationaries?
Transactional type
Stationaries are low value, low risk items that many suppliers can supply. The buyer can run competitive tendering to select the best offer. The contract is quite long. The most appropriate type of relationship in this case is transactional.
Friends Company manufactures a product which requires a particular type of valves. The company currently purchases the valves from a supplier at a price of $5 per unit. After analysing the market, the procurement team finds that other suppliers would supply with the same price or higher. With current capacity, the company is able to produce the valves internally. Which of the following should be considered if the company decides to in-source the valve production?
Cost effectiveness
Ability to meet performance standards
he scenario deals with make and buy decision. The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or part—or significantly modified a product or part—is having trouble with current suppliers, or has diminishing capacity or changing demand.
Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment. Issues like government regulation, competing firms, and market trends all have a strategic impact on the make-or-buy decision. Of course, firms should make items that reinforce or are in-line with their core competencies. These are areas in which the firm is strongest and which give the firm a competitive advantage.
The two most important factors to consider in a make-or-buy decision are cost and the availability of production capacity. Burt, Dobler, and Starling warn that “no other factor is subject to more varied interpretation and to greater misunderstanding” Cost considerations should include all relevant costs and be long-term in nature. Obviously, the buying firm will compare production and purchase costs. Burt, Dobler, and Starling provide the major elements included in this comparison. Elements of the “make” analysis include:
- Incremental inventory-carrying costs
- Direct labor costs
- Incremental factory overhead costs
- Delivered purchased material costs
- Incremental managerial costs
- Any follow-on costs stemming from quality and related problems
- Incremental purchasing costs
- Incremental capital costs
Buying organisation should establish adversarial relationships with suppliers in which of the following contracts?
Simple one-off contracts
In adversarial relationships, the outcome of the deal is more important than maintaining the relationship over a long term period. Both parties are trying to extract the maximum value out of the deal for themselves. The gain of the buyer will be at the expense of the supplier’s profit margin. These relationships are characterised by poor communication, a lack of trust and short-term or one-off contracts.
Which of the following are most likely to be the right relationship strategies with suppliers when procuring items that have high profit impact and high supply risk?
Partnering agreements
Joint venture
According to Lysons and Farrington, to strategic items (high profit impact, high supply risk), main tasks of procurement should be:
- Prepare accurate forecasts of future requirements
- Carefully analyse supply risk
- Seek long-term supplier/partnering agreements (3-5 years) with built-in arrangements for continuous improvement and performance measurement.
- Consider joint ventures with selected suppliers and customers to gain competitive advantage
- Take prompt action to rectify slipping performance
- Possibly move purchasing back into leverage quadrant until confidence restored.
Supplier’s perspective on buyer is fundamentally based on which of the following?
Contribution to total sales
Buyer’s attractiveness
The supplier preferencing model looks at how the supplier views the relationship with the buyer.
Attractiveness - Behaviour of purchasing, Ease of doing business, Culture, ethics, etiquette and potential business growth.
Value of account - Profitability and percent of sellers business.
High attractiveness Low value - Develop - close relationship, high focus on the business
High attractiveness High value - Core - very attractive to supplier with lots of marketing/sales effort allocated
Low attractiveness Low value - Nuisance - supplier not keen in business and will unlikely put in effort/resource
Low attractiveness High value - Exploit - supplier tend to raise price while not put in further effort/resource
Procurement is a strategic function within an organisation, especially in terms of pricing and cost management. Which of the following are the ways that procurement can add value?
Undertaking open book costing
Specification development
Procurement can add value either by reducing costs without any compromise in quality or product features. or by assuring operational efficiency to enable better quality at no additional cost.
Ideally, we might aim to achieve both of these objectives (improved output at reduced cost) by means such as the following.
- Efficient management of procurement activities to reduce transaction cost that will enable cost reduction
- Effective inventory management, to minimise acquiring and holding costs this also will help in cost reduction
- Effective contracts negotiation and management in order to reduce the cost of inputs
- Effective communication with user departments to enhance specifications, so that business needs are fulfilled more efficiently and at lower cost
- Selecting and managing suppliers, in order to improve the quality of inputs, with consequent improvement in the quality of outputs
- Working with key supply chain partners to eliminate wastes (non-value adding activities) wherever they are found in the supply process: an approach sometimes referred to as ‘lean’ supply.
Which of the following are most likely to increase the buyer’s attractiveness in supplier’s perspective?
The buyer has a leading brand
The buyer exercises a stringent code of conduct
Buyer’s action may affect how supplier sees it. The supplier will consider a buyer more attractive if the buyer:
- Is able to ensure long-term profitability for the supplier
- Offers further opportunities for supplier’s growth
- Has good reputation/brand in the market
- Practice ethical trading
- Has willingness to co-operate on projects
Which of the following are benefits of using Kraljic supply positioning model?
It helps to identify the optimum relationship for each supplier.
Better understanding of products’ importance
The use of Kraljic model to segment the products and services that an organisation procures has a number of benefits and some limitations as below
Kraljic portfolio matrix - advantages
- The model is simple to undertake and apply
- Can be applied across most organisations and industries
- Provides buyer a better overview and understanding of the importance of each of the products to the business
- Assist in deciding the types of relationship and strategy for each of the suppliers
- It can provide an additional insight into strategic issues (Weele)
Kraljic portfolio matrix - limitations
- Supply markets are complex and not always easy to classify products or services into one of the four quadrants
- There is an element of subjectivity regarding where the products and services are located within the model
- Overtime, there are changes in the marketplace downgrading the analysis as only a snapshot in time
- The analysis is based on the buyer’s perception of the business without considering the suppliers’ side
GS Ltd. is a major tobacco company in the US. Recently, the government agency has imposed strict new rules calling for a reduction in the nicotine levels in cigarettes. In addition, younger generations give up on the smoking habit due to higher awareness of health impact. GS is mostly impacted by which macro factors?
DIR Corp is one of the largest international producers of soya beans. The corporation has excellent global facilities where it applies highly specific biopesticides in cultivation of the plants. But the technologies in this industry are improving rapidly. If DIR wants to maintain its competitive advantages, regular update on new technologies is a must. Furthermore, recently the climate change and wildfire have lowered its production. The macro factors that have the greatest impact on DIR are…
Which of the following is an example of political elements in STEEPLE analysis - Visa requirements and trading tariffs
Letter ‘E’ in STEEPLE stands for…?
Socio-cultural - social forces influence our attitudes, interests, opinions, moreover create our behavior and ultimately what we purchase. Trends’ changes have correspondingly direct impact on enterprises. These factors contain: structure of population, falling rates, competition, increase of global population, traditions, level of education, cultural diversity and standards.
Techonological - new technologies, absorptive capacity for innovation, globalization. New technologies shorten Product life cycle and increase demand for new products. This revolution has increased the rate at which information is exchanged between stakeholders. A faster exchange of information can benefit companies as they are able to react quickly to changes.
Economic - national interest rates and fiscal policy is set around economic conditions, besides has influence on purchasing power of consumers and structure of their expenditure. These factors include: gross domestic product (GDP) creating by demand, stock quote, currency rate fluctuations, rate of inflations, market substitutive and complementary, tax policy, price changes, revenues, savings and level of unemployment.
Environmental - environmental protection legislation, pollution, waste management and disposal, clean air and water, energy saving technologies, attitudes towards ecology in society.
Political - factors could create plenty of advantages and opportunities for organizations. These factors include: political situation, political stability, state interference, market regulations, trade agreements, tariffs or restrictions, taxes, lobbying and clarity of law.
Legal - (subset of above mentioned political factors) involve all regulatory and law determinants that can negatively or positively affect results of market actions and decisions of management of company functioning in particular country. International companies must analyze and identify those factors (legal environment) independently for every state they function.
Ethical factors involve duties, morality, integrity, behaviour, what is good and bad for company, employees and society as a whole.
Which of the following is ABC analysis based on?
Significant few, trivial many.
Pareto analysis and ABC analysis are based on the 80/20 rule. This rule states that, for many events, roughly 80% of the effects come from 20% of the causes.
In ABC analysis:
- A items account for 80% of costs and 20% of volume
- C items represent low-cost and high-volume items
- B items are in the middle
ABC analysis helps procurement team target their effort in order to leverage better outcomes and add more value for the wider business. However, ABC analysis does not consider the supply risks or other non-cost elements such as quality, strategic importance, etc. Gelderman (2000) concludes that “The ABC-analysis however, does not provide strategic recommendations for the categories. Due to this lack of guidelines, the ABC-analysis can not be considered as a full portfolio technique.”
Request for information is typically used at which stage of relationship cycle?
Qualification.
Supplier relationships will pass through a relationship cycle. Supplier relationships will evolve and change over time. The relationship life cycle involves the following stages:
- On-boarding
- Qualification
- Segmentation and risk management
- Performance management
- Development and innovation
- Phase out (if required)
The request for information (RFI) is a solicitation document used to obtain general information about products, services, or suppliers. It is an information request, not binding on either the supplier or the purchaser, and is often used prior to specific requisitions for items.
In qualification stage, a buyer may issue an RFI or RFP. The purpose of this stage is to collect information on suppliers. In the RFI/RFP, the buyer may ask the supplier to provide references to evidence its competency.
Carter’s 10Cs is a key model that buyers can use to support them in building effective selection and qualification processes.
The 10 Cs are criteria for assessing the suitability of a potential supplier. Use them as a checklist when deciding who to approach, and who to avoid. They are:
- Competency. 2. Capacity.
- Commitment. 4. Control.
- Cash. 6. Cost. 7. Consistency.
- Culture. 9. Clean. 10. Communication.
Product or service that has large impact on profit is only produced by internal suppliers. Is this true?
No, because external suppliers with high degree of expertise may be more cost effective.
Products or services produced by an internal supplier are usually those that are considered core to the business and therefore are not suitable to be produced by an external supplier. There are many ways to identify a core business, but the most common tool is Outsourcing matrix based on Barnes:
The Matrix identifies the two most important factors that you should consider when you’re thinking about outsourcing a task:
- The strategic importance of the task. Does the task in question give your business a competitive advantage?
- The task’s impact on your operational performance. How much does the task contribute to the smooth running of your organization? And how much disruption does it cause if it’s done badly?
The core business of an organization is an idealized construct intended to express that organization’s “main” or “essential” activity. Products or services are not core businesses, but designing them and delivering them may be the core businesses to some organisations. High-impact products or services can be bought from an external suppliers if they are more cost effective.
XYZ Ltd is a medium-sized engineering company that manufactures a range of equipment used in the civil engineering industry. Over the last five years, XYZ has noticed a decline in sales as a result of competitive activity, mainly from companies based in developing countries. These competitors have access to lower labour and raw materials costs and can undercut XYZ’s prices significantly in most of the markets in which it operates. In response to this strategic threat, XYZ has proposed the following action plan:
(i) Maintain its market share by innovation, and by providing a first class technical service to its many UK and international customers
(ii) Rigorously cut waste from its supply chain
(ii) Encourage innovation from its suppliers
(iv) Aim at cost parity or proximity relative to its competitors
Its source of competitive advantage is based on which recognised approach?
Cost Leadership
A company who selects cost leadership strategy will implement the following:
• The company competes as the lowest-cost producer by exploiting the sources of cost advantage
• The company typically sells standard or budget products
Competition in the market will be fierce if there are many adopting this strategy of cost leadership.
Differentiation.
In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. XYZ encourage innovation and provide first class technical service
Focus
XYZ serves a broad range of customers, including UK and international customers. Firms that are successful in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow geographic market segment, or to a particular buyer group or segment. The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
RC Inc manufactures a range of high quality caravans in Europe. These caravans use several types of equipment for the supply of electricity, gas and water. The technical equipment is sourced from well-known brands which supply all other caravan manufacturers. With RC Inc benefiting from the positive sales environment, output has risen by 20% over three years and projections indicate a further 15% increase in the next three years. However, the financial director has recently flagged up concerns regarding falling gross and net margins. The procurement manager has pointed out that the cost of materials for the branded electrical, gas and water equipment is rising. Which of the following should be priority action of RC procurement function?
Review whether any current inputs could be submitted by non-branded alternatives.
In the scenario, since the revenue is still rising but margin is falling, the focus should be put on managing cost of inputs.
In managing the cost of inputs, one of the first jobs of procurement is to work with the user department and other key internal stakeholders on the specification of the requirements. In this scenario, the main cost driver is the use of branded technical equipments. Procurement can reduce the cost of inputs by reviewing whether any current inputs could be substituted by non-branded alternatives.
There are other elements to consider:
- Ensuring that the user department has not over-specified the requirement
- Making sure that the specification is clear and unambiguous, that prices are not being over-inflated due to uncertainty
- Ensuring that all spend with a supplier is captured under the contract and in line with agreed rates
- Involving the supplier early on in the process.
Which of the following are direct ways in which procurement can help to add value to an organisation?
Procurement should strive to achieve which of the following?
Managing quality of input
Selecting appropriate suppliers and managing their costs
Value for money
Sustainability
The primary objective of procurement department is to obtain the ‘inputs’ required for the operation of a company, these inputs vary according to the type of the organisation.
The main objective of a procurement function is to provide (inputs of the ‘right quality’; delivered in the ‘right quantity’ to the ‘right place’ at the ‘right time’ for the ‘right price’. These are called procurement 5 rights. These are often called the ‘five rights of procurement’.
Meanwhile, we can identify other general objectives of procurement operations or other primary task of procurement. They are Internal customer service, Risk management, Cost control and reduction and Relationship and reputation management and sustainability,
Ideally, we might aim to achieve both of these objectives (improved output at reduced cost). by means such as the following.
- Efficient management of procurement activities to reduce transaction cost that will enable cost reduction
- Effective inventory management, to minimise acquiring and holding costs this also will help in cost reduction
- Effective contracts negotiation and management in order to reduce the cost of inputs
- Effective communication with user departments to enhance specifications, so that business needs are fulfilled more efficiently and at lower cost
- Selecting and managing suppliers, in order to improve the quality of inputs, with consequent improvement in the quality of outputs
- Working with key supply chain partners to eliminate wastes (non-value adding activities) wherever they are found in the supply process: an approach sometimes referred to as ‘lean’ supply.
What type of supplier relationships is needed so that the supplier endorses open book costing?
Partnership relationship.
An open book costing is nothing more than an agreement to view data and financial information relating to costs incurred in any one part of the supply chain.
Benefits To Open Book Costing
Supplier is helped to retain the customer’s business,
Supplier is kept stable and will also be able to meet the customer’s needs.
Open and transparent negotiations which enables the customer to buy from suppliers that they trust and who offers the best overall value.
Customer can even help the supplier by suggesting ways that they may be able to source some raw materials from companies that offer better value for money, thereby reducing the costs of the end product further.
Which of the following are most likely to be reasons why an organisation sources its requirements from external suppliers?
External supplier is the supplier that is independent of the organisation and provides products or services to it. When an external supplier is selected, particularly for complex contracts, the decision is made based on several factors. These factors include but may not be limited to: purchase price, delivery lead time, quality of product or service and the previous experience of the supplier. There are a number of advantages and disadvantages to using external supplier as below:
Advantages
- An external supplier is usually an expert in its core business
- Having relevant competencies and technology and coupled with the need to compete in the market, suppliers are likely to be able to provide better value for money
- Cost effective due to economy of scale
- Enabling buying organisation to focus on its core business
Disadvantages
- Dependency of suppliers, especially in a non-competitive market
- Supplier’s business behaviour may have negative impact to the reputation of the buying organisation
- The risk of relational issues
- Cost and risk of transportation
Kraljic model provides the comprehensive picture to develop the best strategy for managing supplier relationship. Is this true?
No because the Kralijic model does not tell the buyer about the supplier’s perspecive.
Supplier preferencing model provides the buyer with information that it was unaware of and the supplier’s view. Therefore, once both Kraljic and supplier preferencing have been undertaken, the buyer will have fuller picture of the best strategy to help it move to the desired relationship.
If buyer just uses Kraljic matrix to build-up the strategy, this may lead to potential risk for the buyer because sometimes the buyer and the supplier may not always have the same view of the relationship, especially, if the supplier views the buyer as nuisance or exploitable.
Along the relationship spectrum from adversarial to collaborative co-destiny, there are changes in relationship features. Which of the following are true about these changes?
Both parties aim at joint issue resolution
Both parties communicate more open and more frequently
A procurement team is classifying purchase products and services by using Kraljic model. To position the items on the correct quadrant, they have to assess the supply risks associated with each group of items. In order for the procurement team to assess the level of risk, which of the following should be considered?
Impact
Probability
A risk assessment is a thorough look at your workplace to identify those things, situations, processes, etc. that may cause harm, particularly to people.
How is a risk assessment done?
- Identify hazards.
- Determine the likelihood of harm, such as an injury or illness occurring, and its severity.
- Identify actions necessary to eliminate the hazard, or control the risk using the hierarchy of risk control methods.
- Evaluate to confirm if the hazard has been eliminated or if the risk is appropriately controlled.
- Monitor to make sure the control continues to be effective.
- Keep any documents or records that may be necessary. Documentation may include detailing the process used to assess the risk, outlining any evaluations, or detailing how conclusions were made.
Which of the following are the processes that help an organisation focus on continuous improvement?
Total Quality Management
Value Analysis
Total Quality Management guides organisations through the management approach that focus on customer satisfaction.
8 principles of total quality management are:
- Customer-focused,
- Total employee involvement
- Process-centered
- Integrated system
- Strategic and systematic approach
- Continual improvement
- Fact-based decision making
- Communications
Value analysis
Value analysis is a process that can add value for businesses. This involves a review of the current product or service including the specification, its component parts and the processes used for manufacturing in order to create the optimum product or service at the lowest total cost. This process is linked to early supplier involvement.
According to Michael Porter, there are three generic competitive strategies: cost leadership, differentiation and focus. Is it true that in differentiation, the business seeks to provide specialised services to customers in niche market?
Differentiation.
False, the business broadens the competitive scope and differentiates its products.
Retail sector in Asia is growing exponentially. Senior management of Company A wants to extend their business unit to this market but profitability is a big concern to them. Which of the following is the right tool to analyse the profitability of an industry?
Porter’s Five Forces
Porter’s Five Force is a tool for analysing the profitability and attractiveness of an industry.
The five forces determine industry profitability because they influence the prices, costs, and required investment of firms in an industry— the elements of return on investment.
Threat of substitution
Competitive rivalry - The intensity of rivalry influences prices as well as the costs of competing in areas such as plant, product development, advertising, and sales force.
Buyer power influences the prices that firms can charge. The power of buyers can also influence cost and investment, because powerful buyers demand costly service.
The bargaining power of suppliers determines the costs of raw materials and other inputs.
The threat of entry places a limit on prices, and shapes the investment required to deter entrants.
Procurement professionals often use Kraljic portfolio matrix to classify products supplied to ensure that the correct type of relationship is developed with each supplier. When should this action be done?
Supplier relationships will pass through a relationship cycle. Supplier relationships will evolve and change over time. The relationship life cycle involves the following stages:
- On-boarding
- Qualification
- Segmentation and risk management
- Performance management
- Development and innovation
- Phase out (if required)
In the segmentation and risk management phase the products that a supplier provides will be segmented and classified (using Kraljic portfolio matrix) to ensure that the correct relationship type is developed with each supplier
Since its foundation, Virgin Airlines has a mission to make air travel affordable and enjoyable. Virgin’s business model is offering inexpensive fares, full service flights and outstanding customer service. By reducing the costs associated with air travel, Virgin Airlines is able to remain competitive with the cost-cutting airline companies. Lower costs, however, don’t translate into fewer services – Virgin is a full service airline with on-plane WIFI, touchscreen seatback entertainment, and full service meals available with roomy cabins. Virgin Airlines’ source of competitive advantage is based on which recognised approach?
Differentiation
Which of the following is the basic tool for analysing the sources of competitive advantage?
Porter’s Value Chain
Supplier relationship management has long been the centre of XYZ Ltd’s procurement strategy. XYZ procurement team is familiar with using Kraljic model to categorise the products and services and establish suitable type of relationships with suppliers of each category. A cross-functional team is summoned to make action plans that will progress the supplier relationship. Which of the following should be used in addition with Kraljic supply positioning matrix to develop successful strategies for managing supplier relationships?
Supplier preferencing Model
The combination between supply positioning and supplier preferencing is called market management matrix.
Express Inc. often spends on myriad number of small, low value MRO items. These items are also plentiful in the market where many suppliers can supply. Which of the following are most likely to be the best procurement approaches to these items?
Relationships with suppliers of these items should be adversarial, arm’s-length or transactional. Suitable strategies for procuring these items are:
- Use tactics to leverage savings and reduce costs, e.g., reverse e-auctions/use of procurement cards
- Optimise ordering process and stock holding
- Use online catalogues to improve efficiency. These catalogues are standardised with detailed technical information.
- Standardise product as much as possible to increase volumes
- Construct framework agreement/call-off contracts to reduce burdens of tendering
Jeffrey is a category manager in charge of electronic components at LM Ltd, a leading manufacturer in aerospace industry. The company is sourcing more than 22,000 electronic components from 240 suppliers. These components are largely standardised and technically simple. The design and prices tendered by the suppliers are almost the same. Jeffrey suggests that the company should cut down the number of suppliers and source the components from the most potential supplier only. Is his suggestion appropriate?
Yes, this practice would help the company save costs by achieving economies of scale.
Which of the following approaches may help an organisation reduce costs of inventories and maximise the use of warehouse space
Just-In-Time
Continuous Replenishment Programme also known as Vendor managed inventory (VMI).
Just-In-Time (JIT) is a concept popularised by the productivity of Japanese industry. It described a manufacturing system that enables the achievement of cost reduction and workflow improvement by scheduling materials to arrive at a work station or facility ‘just in time’ to be used. Vendor managed inventory (VMI), also known as continuous replenishment programme (CRP), derives from JIT. It assists manufacturers and distributors in removing the need for customers to reorder which reducing or excluding inventory and obviating stock. These approaches can reduce carrying the cost of inventories and inventory requirements and maximising the use of space.
Which of the following is the measure of efficiency of the investment in establishing, developing and maintaining the buyer-supplier relationship?
RORI (Return on Relationship Investment) is the financial for a buyer of establishing, developing and maintaining buyer-supplier relationship.
ROCE (Return on Capital Employed) is a financial ratio that measures a company’s profitability and the efficiency with which its capital is used.
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity.
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
Tesco and Carrefour are two major supermarket chains in Europe. They have formed a long-term relationship in which both parties will work together and avail the most of their collective product expertise and sourcing capability. They hope that the agreement enables them to make significant procurement savings in the whole goods not for resale sector, such as spend on temporary staff, logistics and distribution, store fit-out, marketing, HR services and IT. The two companies still remain independent from each other in term of business strategies. Which of the following is the relationship type that Tesco and Carrefour have established?
Strategic Alliance Relationship
In which of the following types of market, the barriers to new entrants will be the lowest?
Perfect competition
There are several types of market:
- Monopoly
- Oligopoly
- Imperfect competition
- Monopolistic competition
- Perfect competition
