SCM FINAL PART 2 Flashcards
Why is Supply Chain Management critical?
Firms not only compete against global competitors, but against their competitors supply chains
if a company wants to compete globally, they have to source globally
Advances in information systems have been a catalyst for global sourcing efforts
What is the Formula for Profit Margin?
Net Income / Sales
What is the Formula for Return on Assets (ROA)?
Net Income / Total Assets
higher ROA preferred
What is the profit leverage effect?
the effect of $1 in cost savings increasing pretax profits by $1 and a $1 increase in sales increasing pretax profits only by $1 multiplied by the pretax profit margin
effort to reduce operating expenses by reducing purchasing costs instead of focusing on increasing sales profit
What are the Steps of the Sourcing Process?
Spend Analysis
Profile (internally and externally)
Develop Sourcing Strategy
Screen Suppliers and Make Selection Criteria
Conduct Selection
Negotiate/Implement Agreements
What is the Spend Analysis?
looking at the purchasing data in an effort to better understand spending patterns and identify opportunities for improvement
What is Profiling?
understanding everything about a sourcing category when it coulld ultimately have an impact on the sourcing strategy
In Profiling, what is Industry Analysis?
profiles the major forces and trends that are impacting an industry, including pricing, competition, regulatory forces, substitution, technology changes, supply/demand trends
What is the make or buy decision?
high level decision regarding which products or services will be provided internally and which will be provided by externally supply chain partners
What are the advantages of Insourcing?
High degree of control over operations
economies of scale
Allows for development of core competencies, which allows company to do something competitors will find difficult or impossible to copy
What are the disadvantages of Insourcing?
decreases a firm’s flexibility
long-term commitments
What are the advantages of Outsourcing?
Greater flexibility and alternate sources of supply
Less investment needed upfront
Obtain benefits from partner companies (access to new technologies, skills, and markets)
What are the disadvantages of Outsourcing?
Supplier communication issues
Supplier production issues
Control issues because buying firms need to constantly monitor the quality, availability, confidentiality, and performance of outsourced goods
risk of losing core competencies
What is total cost analysis?
process of identifying, qualifying, and assigning costs to a specific sourcing option
What does Dynamic mean in Total Cost Analysis?
long-run
analyze the total cost to insource (make) vs. The total cost to outsource (buy)
What does Static mean in Total Cost Analysis?
short-run
What are Direct Costs (variable costs)
costs that are easily attributable to the unit of production or service
What are Indirect Costs (fixed costs)
difficult to assign to a unit of production or service
Whats a direct cost associated with Insourcing?
Direct material
Direct labor
Freight costs
Variable overhead
Whats a direct cost associated with Outsourcing?
Price (from the invoice)
Freight (shipping costs)
Whats a indirect cost associated with Insourcing?
Supervision
Administrative support
Supplies
Maintenance costs
Equipment depreciation
Building lease
Fixed overhead
Whats a indirect cost associated with Outsourcing?
Purchasing
Receiving
Quality control
What is the indifference point?
point where make and buy intersect is where the firm is indifferent about whether an item is made or bought
set equations equal and solve
What is the formula for the Total Cost to Make Something?
fixed Costs + (Variable Costs * Quantity)
What is the formula for the Total Cost to Buy Something?
Variable cost * quantity
When making decisions in a static (Short-run) view, you must consider…
Cost of product
Supply chain activities
Other costs – customer duties, export fees, foreign currency exchange
Identify all costs relevant to making the make/buy decision
What is single-sourcing?
purchasing firm depends on a single company for all of a particular item
What is multiple sourcing?
sourcing strategy in which the purchasing firms shares its business across multiple suppliers
In multiple sourcing, what is Cross Sourcing?
company uses a single supplier for one particular part and another supplier with same capabilities for a different part, so either can act as a backup
Provides backup suppliers
Provides competition
What is Dual Sourcing?
two suppliers are used for the same purchased product or service, usually 70-30% split
In conducting a supplier selection, what is the weighted point system?
user assigns weights to the performance measures and rates the performance of each supplier
When negotiating, what is a request for quotation (RFQ)?
request for suppliers to prepare bids, based on the terms and conditions set by the buyer, may include description by market grade/industry standard/brand
When are negotiations used?
used when there is no preferred supplier
When are negotiations best?
Item is new /technologically complex
wide range of performance factors incontract
Buyer requires the supplier to participate in the development effort
Supplier cannot determine the risks and costs without additional input from the buyer
What is a request for information (RFI)?
an inquiry to a potential supplier about that suppliers products or services for potential use in business
What is a fixed-price contract?
most basic contract, stated price doesn’t change
If market prices for a purchase good/service rise below contract price, seller takes on financial loss
If market prices for a purchased good/serivce fall below contract price, buyer assumes risk of financial loss
What is a cost-based contract?
price of service is tied to the cost of some input or some other economic factor
Used when good/services are expensive and complex, or there is a high uncertainty with labor and material costs
What is a Procure to Pay Cycle?
identifying a need, assign a supplier, approve scope, acknowledge receipt and submit payment
What is a Purchase Order (PO)?
document that authorizes a supplier to deliver a product, includes requirements
What is follow up expediting?
times when buying firm has to expedite an order or work with a supplier to avoid shipment delays so someone must monitor the status of open purchase orders
What is a statement of work (SOW)?
terms and conditions for product
What is sustainable supply?
environmental friendliness is becoming an important criterion in selecting suppliers
Buyers want to ensure their suppliers are in compliance with environmental regulations
Suppliers want to reduce costs by reducing packaging
What are the causes of Supply Chain Disruptions?
natural disasters or economic/political events
Cause a big threat to revenue streams and leads to increased risk due to outsourcing to global suppliers
What is the formula used for make or buy decison? (break even quantity)
Quantity equals fixed costs over price minus variable costs
