Test 5 Blueprint Flashcards
What is the business function responsible for all activities and processes required to purchase goods and services from suppliers
Sourcing
The process of buying goods and services
Purchasing
What term goes beyond focusing on just the price of goods and considers a strategic and future-oriented perspective
Strategic Sourcing / Supply Management
Evolution of the Sourcing Function pre-WWII mostly clerical in nature then transitioning from a mere buying function to being responsible for cultivating suppliers and ensuring adequate and continuous supply. (Shortage of materials realized during WWII led to this transition! We talked about one example: the shortage of rubber in class.)
Just memorize
What type of sourcing has a limited number of potential suppliers and larger volumes, specialized needs lead to more opportunity to negotiate
Commercial
What type of sourcing has many suppliers of common items. Buyers are typically final customers and buyer is a small portion of supplier’s total business. Buyer has little ability to negotiate price
Consumer
Which sourcing function acquires the right material and services and making sure they are available to all parts of the organization in the right quantities, right price and right time
Commercial Sourcing Primary Function
What are the 5 impacts on the organization and the supply chain
Operational impact
Financial impact
Strategic impact
Risk Mitigation
Information impact
Which organization impact ensures the right materials, right quantities, right place, and right time and strikes an optimal balance of inventory - Shortage= disruption - Excess=tied-up capital and financial losses
Operational Impact
Which organization impact ensures sourcing spends 50% - 90% of revenue in most manufacturing organizations and ensures large sums of money
Financial Impact
Which organization impact supports organization’s strategic direction (business strategy –competitive priorities and matching criteria when selecting suppliers)
Strategic Impact
Which organization impact minimizes supply disruptions and protects reputation? This impact also ensures suppliers meet performance standards and evaluates suppliers on a longer-term source of supply
Risk Mitigation
Which organization impact will continually collect information on prices, suppliers, goods, new products and tech
Information Impact
What is responsible for acquiring goods and services, ranging from identifying potential suppliers to negotiating and awarding contracts and ensuring those contracts standards are met
Sourcing Function
What part of the sourcing process involves identifying potential suppliers and solicits business from potential suppliers by sharing a RFQ, RFP, or RFI
Supplier Selection
When potential suppliers solicit a business by sharing a specific document used to solicit vendor responses when a product has been selected and price quotations are needed from several vendors. What document are they using?
Request for Quotation (RFQ)
When potential suppliers solicit a business by sharing a specific used to solicit vendor responses when the functional requirements
and features are known but no specific product is in mind. What document are they using?
Request for Proposal (RFP)
When potential suppliers solicit a business by sharing an inquiry to a potential supplier about that supplier’s product or service for potential use in the business. The inquiry can provide certain business
requirements or be of a more general exploratory nature. What document are they using?
Request for Information (RFI)
What organizational functions do sourcing teams have to consider in from?
Engineering
Operations
Marketing
Which organization function must assess tolerance specification requirements for purchased parts
Engineering
What organization function must determine which sourcing choice is preferred given the current production process
Operations
What organizational function must understand if product changes influenced by sourcing selection will impact sales
Marketing
Define the term: the sum of all costs incurred to produce the product
Cost
Define the term: the amount at which the product us being sold in the marketplace
Price
What is the Total Cost formula
F (fixed cost) + V( variable cost) * Q( number of units sold)
Define the term: purchase price plus all other costs associated with acquiring the item
Total Cost of Ownership (TCO)
T/F- TCO is determined by adding the other “associated costs” like the cost of transportation to the Price
True
What are two different methods used to reach agreement and develop contracts with potential suppliers
Bidding and Negotiation
When suppliers offer a competitive price to win contracts from buyers and the product is standardized( not customized) and qualified supplies are plentiful. This is an example of
Bidding
The process of gaining concessions from another party; a cooperative process, typically few suppliers exist, suppliers customize product to buyer, product is new or technically complex
Negotiation
What products can be described as satisfying basic functions or needs, i.e. food, gas, batteries, etc
Functional
What products are purchased for status such as high fashion or tech
Innovative
When product demand is unstable and difficult to predict
Demand Uncertainty
When there is uncertainty regarding the sources of supply and their capabilities
Supply Uncertainty
What product falls under these characteristics stable and predictable demand, long life cycles, supply chain is easier to manage BUT they have low profit margins
Functional Products
What product falls under these characteristics highly unpredictable demand (this makes forecasting difficult), short life cycles, supply chain is difficult to manage BUT they have higher profit margins
Innovative Products
Demand uncertainty and Supply uncertainty are related to the type of product and their supply chain
Demand uncertainty involves functional and innovative products
Supply Uncertainty involves low supply uncertainty and high supply uncertainty
Sources of supply are well established, manufacturing processes are mature, underlying technology is stable this is known as
Low supply uncertainty (stable process)
When sources of supply are rapidly changing this is known as
High supply uncertainty (evolving process)
Which form of sourcing is becoming the norm?
Single Sourcing
The benefits of this form of sourcing builds closer relationships and cooperation. It reduces costs via volume discount, improved quality, lowers freight costs, is easier for scheduling deliveries, and the supplier may be more cooperative in general knowing they are the only supplier
Single Sourcing
The drawbacks of this form of sourcing are risky! The buyer may use majority of supplier capacity and may not want to be tied to a supplier that is highly dependent on them. Buyer is vulnerable should there be a supply disruption (fire, tsunami, labor strike, etc.)
Single Sourcing
The benefits of this form of sourcing was originally believed to increase cost competition (drive down prices) and ensure supply security
Multiple Sourcing
The drawbacks of this form of sourcing focus on competitive bidding vs. building closer relationships, could drive higher cost due to lack of volume consolidation
Multiple Sourcing
Define the term: choosing a third party, such as an outside supplier or vendor, to perform a task, function, or process to incur business benefits
Outsourcing
What are 3 benefits of outsourcing?
Lower costs
Access to technical skills
Ability to free themselves of doing noncore activities
What are the two key dimensions of outsourcing
Scope and Criticality
This dimension of outsourcing is the degree of responsibility assigned to the supplier
Scope
The dimension of outsourcing that focuses on the importance of the outsourced activity/ task to the organization
Criticality
The use of internet technology to conduct auctions as a means of selecting suppliers and determining aspects of the purchase contracts can be described as
E-Auctions
What is another tool for sourcing managers to use when selecting suppliers
E-Auctions
What are the 3 common performance measures that are used to measure the performance of the sourcing function
Inventory turnover
Weeks of Supply
Cash to Cash Cycle
A measure of how quickly inventory moves can be described as
Inventory Turnover
Tells a manager how long the current on hand inventory will last based on current demand can be described as
Weeks of Supply
Ellis Enterprises is a world class manufacturer of automobile audio systems. Ellis Enterprises employs highly specialized production processes and as a result they have inventory throughout. They have $2,725,000 in raw material inventory, $1,152,000 in work in process inventory, and $3,225,000 in finished goods inventory on average. Ellis Enterprises sales for the most recent year was about $25 million. What is the inventory turnover for Ellis Enterprises?
Inventory turnover = COGS/Avg Inventory Value
=$25,000,000/($2,725,000+$1,152,000+$3,225,000)
=$25,000,000/$7,102,000
=3.52 turns
Walmart, Inc. reported an average inventory value of $44,435,000,000 in their January 31, 2020 report. For the same period they reported a Cost of Revenue valued at $394,605,000,000 and Total Revenue valued at $523,964,000,000. What is their inventory turnover?
Inventory turnover = COGS/Avg Inventory Value
=$394,605,000,000/$44,435,000,000
=8.88 turns
Do 3,4, and 5 on the homework
