Chapter 5 - Sourcing

Question 1

Order Fulfillment

Answer 1

• Purchasing, producing, and logistics are responsible.

Question 2

Purchasing

Answer 2

Acquires the inputs used to support production and day-to-day business activities.

Question 3

Production

Answer 3

Converts sourced inputs into a product or service that customers value.

Question 4

Logistics

Answer 4

Transports and stores goods, assuring that inbound materials are available for operations and that outbound finished products are available when and where the customer wants to buy them.

Question 5

SCOR Model (Supply-Chain Operations Reference)

Answer 5

• Creates a common vision for managing and coordinating five SC processes.
  1. Plan
  2. Source
  3. Make
  4. Deliver
  5. Return

Question 6

Plan

Answer 6

• Balance demand and supply
• Develop a course of action to meet needs.
• Aligns SC plan with financial plan.

Question 7

Source

Answer 7

• Processes that purchase goods and services to meet planned or actual demand.
• Selecting suppliers
• Establish policies
• Schedule deliveries
• Assess performance

Question 8

Make

Answer 8

Process that transforms product to a finished product.

• Scheduling production
• Measuring performance
• Managing inventory
• Configuring the network

Question 9

Deliver

Answer 9

Providing the finished goods and services to customers.

• Order management
• Warehouse management
• Transportation management

Question 10

Return

Answer 10

Processes associated with the return of products for any reason.

• Includes post delivery customer support.
• Reverse logistics
• Long term customer support

Question 11

Purchasing as a Strategic Function

Answer 11

• Purchased inputs became a primary operating cost.
• Just in time manufacturing place greater emphasis on long time supplier relationships.
• New technologies made it possible to store and track info.
• Better trained and more competent managers began to enter the supply arena.

Question 12

Cost of Sourcing

Answer 12

• .55 of each dollar spent on purchased goods and services.
• 60-80% of operating expenses
• The single largest cost category.

Question 13

The Sourcing Process

Answer 13

1. Need is Identified and Communicated
2. Supplier is selected
3. An order is placed and transaction is managed.
4. Performance is measured and relationships are developed.

Question 14

Recognition and Description of a Need

Answer 14

• Begins the sourcing process
• Use of a purchasing policy or procedure handbook, guidelines in place.
• Purchase Requisition

Question 15

Purchase Requisition

Answer 15

• Clearly describe and communicates needs to sourcing.
• Item description
• Requisitioning Department
• Authorizing Signature
• Purchase quantity
• Delivery date
• Location

Question 16

Supplier Selection

Answer 16

1. Identification
2. Evaluation
3. Approval
4. Monitoring
   * Most important step
   - High quality, low cost

Question 17

1. Identification

Answer 17

Make a list of all potential suppliers.

Question 18

2. Evaluation

Answer 18

• Identification of supplier selection criteria
• Gather performance info.
• Assess and compare suppliers

Question 19

3. Approval

Answer 19

1. Identifies the suppliers eligible to receive an order if price is competitive.
2. Number of suppliers on list depends on item being purchased.
   - Commodity type = multiple suppliers
   - Unique items = sole-sourcing.

Question 20

4. Monitoring

Answer 20

• Assures high level of performance

- Scorecards are used to give ratings.

Question 21

Transaction Management

Answer 21

1. Price Determination
2. Purchase Order
3. Follow-Up and Expediting
4. Receipt and Inspection
5. Supplier Payment

Question 22

1. Price Determination

Answer 22

• Best Price = buying at list price, competitive bidding, negotiation.

Question 23

Buying at list price

Answer 23

• Lower-volume or lower-valued items.

Question 24

Competitive bidding

Answer 24

• Relies on the market forces to get suppliers to offer a low price.
• Real-time, on-line bidding, revers auctions = 10-30% reductions in price.
• Dollar value of purchase is high enough to justify work.

Question 25

Negotiation

Answer 25

- Used when the dollar value of purchase is large - High uncertainty exists - Long-term relationships desired. - Price agreement that is mutually beneficial.

Question 26

2. Preparation of the purchase order

Answer 26

- Specifies the terms and conditions of the purchase agreement and initiates supplier action. - Blanket order, web catalogs (place order with click of a mouse), corporate procurement cards (small dollar purchases).

Question 27

Blanket Order

Answer 27

- Overall terms of agreement for a given time period. - 1 to 2 yrs. - Covers entire quantity to be purchased. - Buying organization submits a materials release to trigger a new shipment.

Question 28

3. Follow-Up and Expediting

Answer 28

- Assures that suppliers comply with the purchasing agreement.

Question 29

When problems occur...

Answer 29

1. Increase frequency of follow-up efforts 2. Send personnel to work with the supplier 3. Use higher-cost emergency transportation 4. Arrange for delivery from an alternative supplier 5. Alter the buying organization's production schedule.

Question 30

Expediting

Answer 30

The efforts to speed up the delivery of an order.

Question 31

Penalty Clauses

Answer 31

Built to avoid delivery problems. - late fees - incentives

Question 32

4. Receipt and Inspection

Answer 32

- Order arrives at buying company - Passes through receiving process - Invoice matched to contents (physical count and quality inspection)

Question 33

Reasons for failure in receipt

Answer 33

1. Count is off | 2. Quality is inferior.

Question 34

Supplier Certification

Answer 34

- Simplifies the receiving process - Improve supplier's abilities to eliminate inspections. - dock to dock suppliers - better quality and reduced cycle times are benefits.

Question 35

5. Invoice Clearance and Supplier Payment

Answer 35

- Timely payments help build good relationships. | - 2% discount if payment made in 10 days with full pmt. due in 30 days.

Question 36

Relationship Management

Answer 36

1. Performance Monitoring and Improving

Question 37

Information that should be tracked

Answer 37

1. Current status of POs 2. Performance on selected evaluation criteria for all suppliers 3. Info. on each part type 4. Info. regarding all contracts and relationships.

Question 38

Purchasing Skills

Answer 38

1. Knowledge Management 2. Relationship Management 3. Process Management 4. Technology Management

Question 39

Knowledge Management

Answer 39

- Commodity expertise - Understanding of suppliers capacities - Clear idea of upstream processes - Increase global awareness and skill set

Question 40

Relationship Management

Answer 40

- Building right relationships with suppliers. | - Build new and maintain fair relationships.

Question 41

Process Management

Answer 41

- Constantly improve the sourcing process - Manage collaborative processes (NPD, supplier certification, cycle-time reduction) - Help suppliers improve their own processes.

Question 42

Technology Management

Answer 42

- Web catalogs, web scorecards, EFT, online bidding, real-time info. exchange. - ERP and CRM software are expensive - purchasers can help make decisions with these.