Procurement Flashcards
What is sourcing?
Finding sources of supply, guaranteeing continuity in supply, ensuring alternative sources of supply and gathering knowledge of procurable resources.
What is purchasing management?
All activities that are required to manage supplier relationships.
What are the stages in the strategic sourcing process?
- Assess Opportunities
- Profile Internally & Externally
- Develop the Sourcing Strategy
- Screen Suppliers and Create Selection Criteria
- Conduct Supplier Selection
- Negotiate and Implement Agreements
What is a tool for assessing opportunities?
Spend Analysis
What is Spend Analysis?
The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement.
What are the two approaches to creating profiles?
- Category profile
- Industry analysis
What is a category profile?
An approach to understand all aspects of a particular sourcing category that could ultimately have an impact on the sourcing strategy.
What is industry analysis?
An approach to provide a more detailed understanding of the characteristics of the external supply base.
What is the Make-or-Buy Decision?
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.
What is insourcing?
The use of resources within the firm to provide products or services.
What is outsourcing?
The use of supply chain partners to provide products or services.
What are the advantages of insourcing?
- High degree of control
- Ability to oversee the entire process
- Economies of scale and/or scope
What are the disadvantages of insourcing?
- Reduced strategic flexibility
- Required high investment
- Potential suppliers may offer superior products
and services
What are the advantages of outsourcing?
- High strategic flexibility
- Low investment risk
- Improved cash flow
- Access to state-of-the-art products and services
What are the disadvantages of outsourcing?
- Possibility of choosing a bad supplier
- Loss of control over the process and core technologies
- Communication/coordination challenges
- Increased risk of supply chain disruption
- Corporate social responsibility (CSR) risks
What factors favour insourcing?
- Low Environmental uncertainty
- Low Competition in the supplier market
- Low Ability to monitor supplier’s performance
- High Relationship of product/service to buying firm’s core competencies
What factors favour outsourcing?
- High Environmental uncertainty
- High Competition in the supplier market
- High Ability to monitor supplier’s performance
- Low Relationship of product/service to buying firm’s core competencies
What is Total Cost Analysis?
A process by which a firm seeks to identify and quantify all of the major costs associated with various sourcing options.
What are direct costs?
Costs tied directly to the level of operations or supply chain activities.
What are indirect costs?
Costs that are not tied directly to the level of operations or supply chain activity.
What are the direct costs of insourcing?
- Direct material
- Direct labor
- Freight costs
- Variable overhead
What are the indirect costs of insourcing?
- Supervision
- Administrative support
- Supplies
- Maintenance costs
- Equipment depreciation
- Utilities
- Building lease
- Fixed overhead
What are the direct costs of outsourcing?
- Price (from invoice)
- Freight costs
What are the indirect costs of outsourcing?
- Purchasing
- Receiving
- Quality control
What is portfolio analysis?
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.
What are the 4 categories in the Kraljic Matrix?
- Bottleneck
- Critical/Strategic
- Routine
- Leverage
What is The Routine Quadrant?
Readily available products or services (small % of total).
What is The Leverage Quadrant?
Standardized and readily available products or services (large % of total).
What is The Bottleneck Quadrant?
Unique or complex products or services supplied by few suppliers.
What is The Critical Quadrant?
Unique or complex products or services supplied by few suppliers, representing large % of total.
What are the four sourcing strategies?
- Single sourcing
- Multiple sourcing
- Cross sourcing
- Dual sourcing
What is single sourcing?
The buying firm depends on a single company for all or nearly all of an item or service.
What is multiple sourcing?
The buying firm shares its business across multiple suppliers.
What is cross sourcing?
Using a single supplier for a certain part or service and another supplier with the same capabilities for a similar part.
What is dual sourcing?
Using two suppliers for the same purchased product or service.
What are the criteria to evaluate suppliers?
- Process and design capabilities
- Management capability
- Financial condition and cost structure
- Longer-term relationship potential
What is the weighted-point evaluation system?
An evaluation system to evaluate potential suppliers, track supplier’s performance over time, and rank current suppliers.
What is the method of the weighted-point evaluation system?
- Assign weights to performance dimensions.
- Rate the performance of each supplier with regard to each dimension.
- Calculate the total score.
What are the two types of supplier assessment?
- Subjective methods
- Objective methods
What are subjective methods?
Methods that are used when companies evaluate suppliers through personal judgments.
What are objective methods?
Objective methods attempt to quantify the supplier’s performance.
What techniques and tools are used for supplier assessment?
- Spreadsheets
- Personal assessment
- Vendor rating
- Supplier audit
- Cost modeling
What are spreadsheets?
- A tool used to systematically compare and asses quotations obtained from suppliers.
- Important criteria are listed on one axis and the supplier quotations on the other.
What is personal assessment?
- Used for suppliers with whom exist close business relationships.
- Specialists who have experience with the suppliers rate them according to a agreed checklist.
What is vendor rating?
- Limited to quantitative data only.
- Entails measuring the aspects of price, quality and delivery reliability per supplier.
What is suplier auditing?
Entails that the supplier is periodically visited by specialist(s) from the customer. They investigate the production process and quality organization.
What is cost modeling?
- Specialists from the buying company estimate, based on the production technology, the cost of the product.
- This may lead to ‘should cost’ discussions with the supplier.
What is the difference between supplier auditing and vendor rating:
- Supplier auditing
- Focused on the future
- Applied to new and current suppliers
- Qualitative
- It has a broad scope
- Time consuming
- Subjective
- Co-operation with suppliers - Vendor rating
- Based on historical data
- Applied to current suppliers
- Quantitative
- Limited scope
- Factual
- Based on internal administrative data
What is ISO 9001?
A family of standards supported by the International Organization for Standardization.
What are the goals of ISO 9001?
- Meet the customer’s quality requirements and applicable regulatory requirements.
- Enhance customer satisfaction.
- Achieve continual improvement of performance in pursuit of these objectives.
When do we use competitive bidding?
- The buying firm can provide qualified suppliers with clear descriptions of the items or
services to be purchased; - Volume is high enough to justify the cost and effort; and
- The buying firm does not have a preferred supplier.
When do we use negotiation?
- The item is a new and/or technically complex item with only vague specifications;
- The purchase requires agreement about a wide range of performance factors;
- The buyer requires the supplier to participate in the development effort; and
- The supplier cannot determine risks and costs without additional input from the buyer.
