Module 2 Flashcards
Spend
How much money is spent on an item.
Impact
How important the item is to a comapny’s products or services.
Routine spend item
a purchased input of relatively low importance/spend volume, and relatively low supply market complexity
purchasing consortium
two or more organizations that join together for the purpose of leveraging their combined spend volume to generate advantageous pricing and service conditions from suppliers
Critical items
are high-volume/value items that you buy in complex, risky market
customer of choice
a company that consistently receives competitive preference for scarce resources from a critical mass of suppliers
Which category is high-importance, but low market complexity
Routine, Critical, Bottleneck, Leverage. Exploitable
Leverage
What are Direct Materials?
Direct inputs to your firm’s final product or service
Direct materials are often referred to as ‘raw materials’ on financial statements.
What is the significance of Direct Materials in spending categories?
Often the largest spend category, especially for manufacturers
Purchasing strategy tends to be the most sophisticated or well developed.
Define Indirect Materials.
Materials that do not go directly into the product but facilitate its creation
This category is broadly defined and includes any item that is not a direct material.
How are Indirect Materials tracked in financial statements?
They do not have separate tracking and may be included within COGS, SG&A, R&D, or elsewhere
COGS stands for Cost of Goods Sold.
What does MRO stand for?
Maintenance, Repair, and Operating items
MRO items are needed to run operations such as factories and warehouses.
What characterizes MRO purchases?
Multiple, small-dollar purchases
These items are essential for operational continuity.
Define Capital Goods.
Machinery and equipment used to produce other goods with a typical lifespan of over one year
These are often infrequent, high dollar purchases.
What are the characteristics of Capital Goods purchases?
Complex buys involving high technical specification and complicated warranty/service agreements
Pay-for-Performance contracts are common in this category.
What is the definition of Services in the context of spending categories?
Effort that supports a business but does not produce a tangible product
Services are characterized by intangibility.
How can Services be associated with goods?
They may be linked with a good (e.g., service contract/cell phone combination)
This indicates a bundling of services with physical products.
What do purchasing strategies for Services need to focus on?
Developing clear statements of work (SOW) and focusing on measurement and accountability
This ensures that service quality and delivery meet business requirements.
Maverick Spend
buying activity by an unauthorized personel
Dock-to-stock Suppliers
Certified Supplier. when product arrives no need to inspect, striaght to production
When conducting a spend analysis, you should ask the following questions:
What did the business spend (buy) during the past year?
Which suppliers received the majority of the business?
Did the suppliers charge an accurate price across all divisions vs. purchase order (PO) requirements, contracts, and statements of work (SOW)?
Which divisions spent their money on products and services that were correctly budgeted?
Are there opportunities to combine volumes and standardize purchases?
What are the advantages of a Centralized Structure?
• Aggregation of requirements
• Economies of scale/learning
• Negotiating leverage
• Standardization
• Reduce Duplication of Efforts
• More effective supply strategy
• Fewer suppliers
• Closer relationships with key suppliers
• Talent development
What are the disadvantages of a Centralized Structure?
- Increased bureaucracy
- Reduced flexibility
- Slower than decentralized
