The Purchasing Process Flashcards
What are the two fundamental ways to increase profit?
- Increase sales
- Decrease costs
These strategies directly impact net income or earnings.
What is the Profit Leverage Effect?
It indicates that $1 saved from purchasing is comparable to $12.50 in new sales.
What is operating profit also referred to as?
EBIT (Earnings Before Interest and Taxes).
What does the operating profit percentage represent?
It represents the ratio of operating profit to sales.
Fill in the blank: The formula for operating profit percentage is _______.
Total Operating Profit / Sales.
What is the Strategic Profit Model composed of?
- Return on Assets %
- Net profit Margin %
- Asset turnover.
What are some key components of the Purchasing Process (P2P)?
- Order processing
- Shipping
- Warranty/returns processing.
Name the types of general contract types.
- Fixed price contracts
- Cost based contracts
- Performance based contracts.
What is a firm fixed price contract?
A contract type where the price is set and not subject to change.
True or False: Performance-based contracts are typically found in areas of servitization.
True.
What benefits do buyers gain from performance-based contracting?
- Aligns suppliers’ interests with buyers
- Reduces perverse incentives
- Transfers risks to suppliers.
What are some drawbacks of performance-based contracts?
- Buyer risk due to supplier dependence
- Difficulty measuring performance.
What is the significance of the case study ‘An attempt to bring PSM techniques to velocity oil and gas’?
It serves as an example for organizational analysis and critical thinking.
List the steps involved in the organizational analysis critical thinking template.
- Context
- Analysis & recommendation
- Implementation steps.
What are the three stages of procurement maturity?
- Initial
- Developing
- Advanced.
What is the role of Supply Chain Management (SCM) in creating value?
To enhance product/service reliability, flexibility, and quality.
What impact does cost savings have on operating profit?
A $1 saved from purchasing directly increases operating profit.
Fill in the blank: The Net profit Margin % is calculated as _______.
Net profit / Sales.
What is the effect of jet engine manufacturers selling engines at a loss?
They generate profits through maintenance and repair services.
What are the challenges faced by jet engine manufacturers?
Conflicting incentives between manufacturers and customers.
