Section I: Purchasing

Question 1

When is planning initiated?

Answer 1

Purchasing is initiated after the planned order releases in the action bucket of the finalized material requirements plan are released to purchasing or to production activity control (PAC).

Question 2

Planning

Answer 2

Purchasing : The term used in industry and management to denote the function of and the responsibility for procuring materials, supplies, and services.

Question 3

Procurement

Answer 3

Procurement : The business functions of procurement planning, purchasing, inventory control, traffic, receiving, incoming inspection, and salvage operations.

Question 4

Supplier

Answer 4

Supplier : 1) Provider of goods or services. 2) Seller with whom the buyer does business, as opposed to vendor, which is a generic term referring to all sellers in the marketplace.

Question 5

Physical supply

Answer 5

Physical supply : The movement and storage of goods from suppliers to manufacturing. The cost of physical supply is ultimately passed on to the customer.

Question 6

What are the two major types of industrial purchases?

Answer 6

1) Capital expenditures

2) Material, supplies, & services

Question 7

What is the difference between direct and indirect materials?

Answer 7

Materials that are directly used in the products to be sold are called direct materials, while those that are needed in general are called indirect materials.

Question 8

What is the difference between direct and indirect costs?

Answer 8

While needed, accounting cannot directly attribute the cost of indirect materials and indirect labor to individual units of product, so they are put in a general category called overhead.

Question 9

What are the two Value-added roles of Purchasing

Answer 9

The two Value-added roles of Purchasing and other participants is to either increase sales or to reduce costs.

Question 10

Conventional purchasing objectives include?

Answer 10

Conventional purchasing objectives include Purchase the correct goods and services in the specified quality and quantity Purchase goods and services at the lowest total cost to the organization Minimize delivery lead times and optimize other aspects of customer service, such as delivery at the right time and place.

Question 11

Landed cost

Answer 11

Landed cost : This cost includes the product cost plus the costs of logistics, such as warehousing, transportation, and handling fees.

Question 12

Total cost of ownership (TCO)

Answer 12

Total cost of ownership (TCO) : In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream. The main insight that TCO offers to the supply chain manager is the understanding that the acquisition cost is often a very small portion of the total cost of ownership.

Question 13

delivery lead time

Answer 13

delivery lead time

This is the time from when the order is placed until it is delivered to the organization.

Question 14

Lean Purchasing Objectives

Answer 14

Invest in partnerships with key suppliers for mutual gain by developing their potential and developing and maintaining ongoing relationships Fulfill organizational corporate social responsibility and sustainability goals by extending these policies to supplier selection and purchases.

Question 15

dock-to-stock

Answer 15

dock-to-stock

A program through which specific quality and packaging requirements are met before the product is released.

Prequalified product is shipped directly into the customer’s inventory.

Dock-to-stock eliminates the costly handling of components, specifically in receiving and inspection, and enables product to move directly into production. Sometimes referred to as ship-to-stock.

Question 16

supplier relationship management (SRM)

Answer 16

supplier relationship management (SRM)

A comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services the enterprise uses.

The goal of SRM is to streamline and make more effective the processes between an enterprise and its suppliers.

SRM is often associated with automating procure-to-pay business processes, evaluating supplier performance, and exchanging information with suppliers. An e-procurement system is often an example of an SRM family of applications.

Question 17

Supplier certification

Answer 17

Supplier certification

Certification procedures verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customer’s requirements.

Such requirements can include cost, quality, delivery, flexibility, maintenance, safety, and ISO quality and environmental standards.

Question 18

Certified supplier

Answer 18

Certified supplier

A status awarded to a supplier that consistently meets predetermined quality, cost, delivery, financial, and count objectives. Incoming inspection may not be required.

Question 19

What are the three major activities in the planning phase of purchasing?

Answer 19

The three major activities in the planning phase of purchasing include establishing specifications, selecting suppliers, and negotiating contracts.

Question 20

What are the three types of specifications?

Answer 20

The three types of specifications are:

• Functional
• Quantity
• Price

Question 21

Why are functional requirements the most important of the 3 specifications?

Answer 21

Functional requirements, also called functional specifications, are the most important of a product’s or service’s requirements, because they are the details that indicate the form, fit, and function of the material or service.

Functional requirements are also quality requirements.

Question 22

Describe Functional requirements & Quality

Answer 22

Quality is defined by the customer as “fitness for use.”

Functional requirements take this into account when they satisfy customer requirements, and this is addressed during market analysis and product and service design.

Well-designed products will not only be fit for use but fit for use at what the customer considers an acceptable price based on perceived value.

“Value-based quality is the degree of excellence at an acceptable price.”

Value in turn is determined in part by marketing and in part by functional requirements related to product grade (e.g., durability, dependability, aesthetics, and other qualities that make a product fit for use).

Question 23

Describe Quantity Requirements

Answer 23

Quantity requirements involve determining how many units to purchase per order and how often to order to balance supply with demand at the best cost. Items that are rarely in demand will be desired in low quantities per purchase.

Question 24

Describe Price Requirements

Answer 24

Product price is determined by what the market will pay for the item. Since the final price has little leeway, the price for any raw material or component used in the product will also face constraints. An organization will be willing to pay only a certain maximum amount per unit of any given raw material or component based on the value this adds to the final product in the eyes of the user.

Question 25

When selecting suppliers, what is the first consideration?

Answer 25

When selecting suppliers, the first consideration is the number of suppliers that will supply the product or service. Organizations use sourcing to identify suppliers who can provide needed goods and services.

Question 26

What are the 3 basic methods of sourcing?

Answer 26

The three basic methods of sourcing.

1. Sole-source supplier : The only supplier capable of meeting (usually technical) requirements for an item.
2. Single-source supplier : A company that is selected to have 100 percent of the business for a part although alternate suppliers are available.
3. Multisourcing : Procurement of a good or service from more than one independent supplier.

Question 27

Selection criteria

Answer 27

Selection criteria Organizations will typically determine selection criteria and then assign a weight to each factor to indicate its relative importance to the success of the strategy and the type of relationship.

Question 28

request for quote (RFQ)

Answer 28

request for quote (RFQ)

A document used to solicit vendor responses when a product has been selected

Question 29

What are some of the selection criteria organizations often consider?

Answer 29

• Technical capabilities
• Manufacturing capabilities
• Location
• Price
• Reliability
• Supply chain maturity
• .Service offerings
• Management attitude and culture fit

Question 30

Describe an organization’s relationship with its trusted partners.

Answer 30

Trusted partners

A few key suppliers may become trusted partners over time. Often these will be single-source arrangements with long-term commitments. Contracts can be designed to ensure that both parties work to integrate further over time. In addition to a long-term commitment, two other things are needed for these relationships to work: shared vision and trust. Organizations that choose to see the mutual relationship as a shared destiny will develop a shared vision of what the relationship should accomplish. They will communicate at every level of management, both formally and informally, to ensure that these goals are realized.

Question 31

vendor-managed inventory (VMI)

Answer 31

vendor-managed inventory (VMI) as follows: A means of optimizing supply chain performance in which the supplier has access to the customer’s inventory data and is responsible for maintaining the inventory level required by the customer. Accomplished by a process in which resupply is performed by the vendor through regularly scheduled reviews of the on-site inventory. The on-site inventory is counted, damaged or outdated goods are removed, and the inventory is restocked to predefined levels. The vendor obtains a receipt for the restocked inventory and accordingly invoices the customer.

Question 32

consignment

Answer 32

consignment

the process of a supplier placing goods at a customer location without receiving payment until after the goods are used or sold.

Question 33

continuous replenishment

Answer 33

continuous replenishment

A process by which a supplier is notified daily of actual sales or warehouse shipments and commits to replenishing these sales (for example, by size or color) without stockouts and without receiving replenishment orders.

The result is a lowering of associated costs and an improvement in inventory turnover.

Question 34

Negotiating Contracts

Answer 34

Negotiate Contracts Organizations may negotiate contracts with a short list of suppliers, or, for commodities and standard items, they may instead use competitive bidding and simply select the lowest price. The selected supplier is issued a purchase order, which is a type of one-time contract. The first decision in contract negotiation is therefore the type of contract to pursue.

Question 35

Negotiation categories

Answer 35

• Price
• Terms and conditions
• Delivery and quantity.
• Quality

Question 36

Executing Purchasing

Answer 36

Executing Purchasing Purchasing execution involves submitting orders to suppliers. The

Question 37

Inputs That Initiate Purchasing

Answer 37

Inputs That Initiate Purchasing The planned order releases from MRP are an input to purchasing that has already been discussed. Purchasing will generally be able to view these requirements even before the planned orders have been released so that they can plan ahead. These are usually executed using contract buying through a blanket PO or another type of long-term contract. When

Question 38

What type of purchases would be initiated outside of MRP?

Answer 38

Conventional requisitions originating outside of MRP may also be used to initiate purchasing via the purchasing cycle, and these are issued for equipment purchases as well as for unique or small-volume items needed for engineer- or make-to-order production.

Question 39

Do lean systems require a PO?

Answer 39

Lean production systems use kanban signals (cards, empty bins, etc.) to trigger replenishment need, and often no purchase order or requisition is needed as per the long-term contract with the supplier.

Question 40

Purchasing cycle steps (for low-volume or one-time purchasing)

Answer 40

Purchasing cycle steps

• Generate requisition
• Issue purchase order (PO)
• Follow up
• Receive goods
• Approve payment

Question 41

purchase order

Answer 41

purchase order as The purchaser’s authorization used to formalize a purchase transaction with a supplier. A purchase order, when given to a supplier, should contain statements of the name, part number, quantity, description, and price of the goods or services ordered; agreed-to terms as to payment, discounts, date of performance, and transportation; and all other agreements pertinent to the purchase and its execution by the supplier.

Question 42

reverse auction

Answer 42

An internet auction in which suppliers attempt to underbid their competitors. Company identities are known only by the buyer.

Question 43

Manage Contract Buying

Answer 43

Contract buying is the authorization of material releases against a long-term contract. It is used for high-volume and/or high-frequency purchases such as for MRP.

Rather than generating a PO, purchasing will release orders against the schedule or in lots as specified in the blanket purchase order or other long-term contract.

Question 44

Monitoring and Controlling Purchasing

Answer 44

Both the purchasing process itself and the performance of individual suppliers need to be monitored and controlled.

• to safeguard against fraud
• follow-up when there are discrepancies.
• track progress toward goals

Organizations might use a balanced scorecard system .

Question 45

Describe a balanced scorecard system that organizations use to evaluate their suppliers.

Answer 45

Organizations might use a balanced scorecard system or a custom scorecard for these evaluations.

This can allow tracking of multiple goals and actual results across multiple time periods.

Common areas for assessment include:

• Perfect orders: on time, correct place, correct quantity, correct products, acceptable quality
• Correct inventory buffer management or releases against the schedule
• Correct administration, such as correct invoicing or pre-clearing shipments with customs
• Speed of problem resolution and expediting.

Question 46

Purchase requisition

Answer 46

an authorization to the purchasing department to purchase specified materials in specified quantities within a specified time. The functional area needing the item will initiate the requisition.