Lec. 7: Supply Planning and Design Flashcards
What is the difference between “Purchasing” and “Sourcing”
“Purchasing” refers to the purely functional activity, often performed routinely. “Sourcing” refers to the process of identifying, selecting, and managing the suppliers.
What is the main difference between traditional and modern procurement:
While traditional procurement focuses on spending and mainly takes price into account, modern procurement focus on price, cost, and value. Today, procurement also plays an important role in governance and CSR.
How has the role of relationships changed in recent years.
This development is often illustrated with a change from a “dicky bow” to a “rhombus”. This means a change from purely transactional relationships, with the purchasing department being the main touchpoint to the supplier, to broader partnership relations, on several levels of the business.
Explain the MOQ
MOQ, or Minimum Order Quantity, specifies the lowest quantity of a certain product that a supplier is willing to sell.
Explain the dimensions and quadrants of the Kraljic Matrix.
The two dimensions are supply risk and profit impact. The 4 quadrants are “Leverage”, “Strategic”, “Non-critical”, and “Bottleneck”.
Explain the strategy of Kraljic Matrix quadrant “Leverage”
Purchasing approaches to consider here include using your full purchasing power, substituting products or suppliers, and placing high-volume orders.
Explain the strategy of Kraljic Matrix quadrant “Strategic”
These items deserve the most attention from purchasing managers. Options include developing long-term supply relationships, analyzing and managing risks regularly, planning for contingencies, and considering making the item in-house rather than buying it, if appropriate.
Explain the strategy of Kraljic Matrix quadrant “Non-critical”
Purchasing approaches for these items include using standardized products, monitoring and/or optimizing order volume, and optimizing inventory levels.
Explain the strategy of Kraljic Matrix quadrant “Bottleneck”
Useful approaches here include overordering when the item is available (lack of reliable availability is one of the most common reasons that supply is unreliable), and looking for ways to control vendors
What is PPV
Purchase Price Variance [PPV] = (actual price - standard cost) * actual quantity.
Standard cost price is agreed upon in Bill of Material.
What is a major drawback PPV analysis?
A major drawback in PPV analysis lies in the concept of standard cost, which can be tweaked in order to positively impact the PPV.
What are the 4 primary modes of integration?
Internal Integration and the three types of external integration, forward integration, backward integration, and backward and forward integration.
Explain the steps from “open market negotiation” to “collaboration”.
- Open market negotiation (price-based discussions)
- Cooperation (fewer suppliers, longer-term contracts)
- Coordination (information sharing)
- Collaboration (joint planning, technology sharing)
Explain the relationship between strategic importance and degree of collaboration in a partnership.
The higher strategic importance, the more important is strong collaboration. A low-importance purchase can be managed through a arm’s-length relationship, while a high-importance purchase should be managed through a collaborative relationship.
What are some criteria for long-term supply?
- Long-term capability of supply
- Internal capabilities, including technical, operational, financial, and managerial
- Willingness to cooperate and share risk
- Ability to supply other products.
