SCM Exam 2 Flashcards
What is the 7 step sourcing process
- Spend Analysis
- Supply Market Assesment
- Total Cost Analysis
- Supplier identification
- Sourcing Strategy
- Supplier Negotiation / Selection
- Contract Management Evaluation
What is Spend Analysis (short)
- Analysis of historical spend data
- The challenge is that data will be “dirty” and incomplete
What is Supply Market Assesment (short)
- Macro and Mirco-level analysis of the supply market that provides context for sourcing strategy
Total Cost Analysis (short)
- Analytically determine how future prices will trend in the market
- Determine what an item should approximately cost
Supplier Idetification/ Evaluation (short)
- Identify all suppliers who have the capabilities to meet your supply requirements
- Evaluate all potential suppliers for financial strength, past performace (score-carding), and supply capabilities
- Which suppliers will be on contract? Supplier rationalization or supply base optimization
Sourcing Strategy (short)
- Craft the sourcing strategy to the particulars of the spend category
Supplier Negotiation/ Selection (short)
- Maximize the leverage of the buyer firm then drive value to the firm through shrewd negotiations that harness that leverage
Contract Management/ Supplier Evaluation (short)
- Make sure that suppliers adhere to the terms and conditions of the contract
- Minimize Spend Leakage
What is the Spend Leakage Formula
Maverick Spend + Non-Contract Compliance
Maverick Spend
Maverick spend is when an organization doesn’t follow its purchasing policies. Maverick spend can occur for many reasons, but it’s often because an employee does not have the authority to approve purchases.
What are the four primary objectives of Spend Analysis
- Ascertain true category spend
- Non-addressable: Spend not relevant to the category or for which we have no contril
- Determine our demand pricing trends
- Identify potential strategic sourcing opportunities
What are Macro and Micro level analysis in Supply Market Assessment
Macro: Global Supply and Demand Analysis - and their impact on pricing and our leverage
Micro: Supply Market-Level Analysis (at level of suppliers)
What does Supplier Identification do?
Enchance the supplier pool
How do we reduce the supplier pool?
-Through Financial Assessment
- Ratio Analysis
- Vendor Scorecarding
What are the 4 ratios in ratio analysis?
Liquidity Ratios
Leverage Ratios
Activity Ratios
Profatibility Ratios
Liquidity Ratio
(Cash) How capable is the supplier in meeting its short-term cash needs?
Leverage Ratio
(Debt) Is the supplier capable of paying its deby obligations?
Activity Ratio
(Assets) How effective is the supplier in managing its assets?
Profitability Ratio
(Earnings) What rate of return is the supplier earning?
Z-Score Analysis
- Developed by Dr.Edward Altman
- 90% effective in predicting bankruptcy one year in advance
- 75% effective in predicting bankruptcy two years in advance
How many ratios do you need for a z-score analysis?
4 ratios (5 if public company)
What is Vendor Scorecarding?
A supplier performance assessment system where each supplier is evaluated ascross a series of performance metrics, typically on a Likert Scale, and then a composite score is aggregated for comparison with other suppliers
What is supply base optimization?
Supply base optimization is making something as perfect, effective, or functional as possible
What is supplier rationalization?
Optimizing the # of suppliers who receive a portion of the supply contract value to maximize leverage without significantly increasing supply disruption risks
What are supplier rationalization risks?
- Selecting the wrong supplier to remain in the “optimized” supply base
- Cutting the supply base too deeply
What are the 4 key optimization strategies
- Competency Staircase Approach
- Triage Approach
- Improve or Else
- 20/80 Approach
Why Make?
- Keeps our factories and workers operating at a high capacity
- Keepys our technology and intellectual property out of the open market
- Produces higher quality
- Shorter lead-times
- More cost effective
What are some relevant buy cost?
- Total cost
- Variable cost
- Fixed cost
- Sunk cost
- Depreciation
What is total cost?
fixed + variable cost
What is variable cost
labor cost + material cost
What are sunk cost
Fixed costs that have already been incurred or paid for
What is depreciation?
Not a relevant cost to the incremental work of the order
If there is sufficient capacity for the work, what is the only relevant cost and why>
Variable cost, because fixed costs have already been expensed
What is PONC?
PONC stands for Price of Supplier Non-Conformance
PONC describes the costs associated with failing to meet quality standards
What are SPI Scores?
- A key performance indicator used in procurement to assess the safety performance of suppliers
- Measured on a scale of 1- 2, 1 being the best
How do you calculate the suppliers risk adjusted price?
Bid price x SPI
What are the four quadrents of Kraljics Portfolio Matrix?
Leverage, Critical, Bottleneck, and Routine
What is the Leverage Quadrent?
- High business impact, Low complexity
- Used for more standerized products
- Strategy: competitive bidding
What is the Critical Quadrent
- High business impact, High complexity
- Supplier has more power due to their being limited suppliers
- It is important to manage and hae good relationships with the suppliers
- Strategy: Direct negotiation
What is the Bottleneck Quadrent?
- Low business impact, High completixy
- Important to build relationsjips because suppliers are limited
- You want to manage or mitigate supply disruption risk
- Strategy: Develop alternative sources (build supplier redudency)
What is supplier redundancy
Supplier redundancy is having backup suppliers or alternative resources in place to ensure business continuity during disruptions or failures
What is the Routine Quadrent?
- Low business impact, Low complexity
- Used for more routine transactions
- Strategy: simplify procurment process
Single Sourcing
Company makes the decision to go with one supplier
Sole Sourcing
Only one supplier is available
How much of end product quality problems are traced back to poor incoming supplier parts?
80 percent
What is Quality at the Source?
- Doing it right the first time is the most cost effective
- Check suppliers quality management processes and supply management capabilities
What are the three dimensions of Cost of Quality?
- Joseph Juran vs. Philip Crosby (quality is free)
1. Appraisal Cost
2. Failure Cost
3. Prevention Costs
What are appraisal costs?
- Direct costs of measuring quality
- Note: we should not try to “inspect” on quality; instead we should “expect: quality
What are failure costs?
- two types
1. internal - before the product is shipped
Note: costs go up do to reqork, scrap, and or delays
2. external - customer takes possession
Note: highest cost of quality
What are prevention costs?
- keeps defects from occuring
