Lecture 6

Question 1

What does sourcing include? (4)

Answer 1

• Finding sources of supply
• Guaranteeing continuity in supply
• Ensuring alternative sources of supply
• Gathering knowledge about procurable resources

Question 2

What does purchasing management include?

Answer 2

All activities that are required to manage supplier relationships

Question 3

Stock is another word for

Answer 3

Inventory

Question 4

What are the 6 steps of a strategic sourcing process

Answer 4

1. Assess opportunities
2. Profile internally and externally
3. Develop sourcing strategy
4. Screen suppliers & create selection criteria
5. Conduct supplier selection
6. Negotiate and implement agreements

Question 5

What do you want to ensure when you assess the opportunties in the strategic sourcing process

Answer 5

How much do we spend? Is it worth improving?

Question 6

What do you want to ensure when you profile internally and externally in the strategic sourcing process

Answer 6

What features are important?

Who is who in the industry?

Question 7

What do you want to ensure when you develop the sourcing strategy in the strategic sourcing process

Answer 7

Based on my value proposition, what is my strategy?

Question 8

What do you want to ensure when you screen suppliers and create selection criteria in the strategic sourcing process

Answer 8

Request information: ask suppliers what they have to offer

Question 9

What do you want to ensure when you conduct supplier selection in the strategic sourcing process

Answer 9

Which suppliers have the best solutions based on my strategy?

Question 10

What do you want to ensure when you negotiate and implement agreements in the strategic sourcing process

Answer 10

Request quote: suppliers respons in detail to my requirements

Question 11

What is a Spend Analysis

Answer 11

The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement.

Question 12

Which two approaches are there to creating profiles?

Answer 12

Category Profile

Industry Analysis

Question 13

What is a category profile

Answer 13

an approach to understanding all aspects of a particular sourcing category that could ultimately have an impact on the sourcing strategy

Question 14

What is an industry analysis?

Answer 14

An approach to provide a more detailed understanding of characteristics of the external supply base

Question 15

What is the make or buy decision?

Answer 15

A high level (often strategic) decision regarding which products or services will be provided internally and which will be provided by external partners

Question 16

What is Insourcing?

Answer 16

The use of resources within the firm to provide products or services

Question 17

What is Outsourcing?

Answer 17

The use of supply chain partners to provide products or services

Question 18

What are advantages of insourcing? (3)

Answer 18

• High degree of control
• Ability to oversee entire process
• Economies of scale and/or scope

Question 19

What are disadvantages of insourcing? (3)

Answer 19

• Reduced strategic flexibility
• Required high investment
• Potential supplier may offer superior products and services

Question 20

What are advantages of outsourcing? (4)

Answer 20

• High strategic flexibility
• Low investment risk
• Improved cash flow
• Access to state-of-the-art products and services

Question 21

What are disadvantages of outsourcing? (5)

Answer 21

• Possibility of choosing a bad supplier
• Loss of control
• Communication/coordination challenges
• Hollowing out of the corporation
• May disrupt supply chain

Question 22

What is a total cost analysis?

Answer 22

A process by which a firm seeks to identify and quantify all of the major costs associated with various sourcing options

Question 23

What are direct costs?

Answer 23

Costs tied directly to the level of operations or supply chain activities

Question 24

What are indirect costs?

Answer 24

Costs that are not tied directly to the level of operation or supply chain activity

Question 25

What are direct costs of insourcing? (4)

Answer 25

* Direct Material * Direct labor * Freight costs * Variable overhead

Question 26

What are direct costs of outsourcing? (2)

Answer 26

* Price (from invoice) | * Freight costs

Question 27

What are indirect costs of insourcing? (8)

Answer 27

* Supervision * Administrative Support * Supplies * Maintenance costs * Equipment depreciation * Utilities * Building lease * Fixed overhead

Question 28

What are indirect costs of outsourcing? (3)

Answer 28

* Purchasing * Receiving * Quality control

Question 29

What is a portfolio analysis?

Answer 29

A structured approach used by decision-makers to develop a sourcing strategy for a product or service, based on the value potential and the relative complexity or risk represented by a sourcing opportunity.

Question 30

What are the 4 categories in the Kraljic Matrix?

Answer 30

- Bottleneck - Critical - Routine - Leverage

Question 31

What is a Bottleneck product?

Answer 31

Products with limited source supply. Their supply risk is high but does not have a major profit impact. The strength is in the hand of the supplier, the market consists of few suppliers that can behave freely and force prices upward. >>> The purchasing strategy here would be to ensure continuity of supply and to develop plans to reduce the dependence on the supplier by adapting products and investigating alternative products or suppliers.

Question 32

What is a Critical/Strategic product?

Answer 32

Strategic items have high supplier risk and high-profit impact and are bought mainly from strategic suppliers. These items are critical to the business. This power between buyer and supplier is balanced and the goal here is to ensure long-term availability. >>> The company needs to look for a win-win negotiation that benefits both parties. The purchasing strategy to use here includes collaboration and strategic partnerships.

Question 33

What is a Routine product?

Answer 33

Low risk and low-profit impact. They are usually the lowest on the priority list in a sourcing strategy because they can be purchased in different varieties and from different suppliers. By increasing product standardization, much time and money can be saved. >>> The purchasing strategy mostly focuses on reducing administrative costs and logical complexity.

Question 34

What is a Leverage product?

Answer 34

These have a financial impact on the organization however these items are in abundant supply. They are highly standardized and easily available. Buyers possess the balance of power in the relationship and leverage this strength to obtain greater returns. >>> The purchasing strategy includes tendering and competitive bidding.

Question 35

What is Single sourcing?

Answer 35

the buying firm depends on a single company for all or nearly all of an item or service

Question 36

What is multiple sourcing?

Answer 36

the buying firm shares its business across multiple suppliers

Question 37

What is cross sourcing?

Answer 37

using a single supplier for a certain part or service and another supplier with the same capabilities for a similar part.

Question 38

What is dual sourcing?

Answer 38

using two suppliers for the same purchased product or service

Question 39

What are criteria to evaluate suppliers? (4)

Answer 39

* Process and design capabilities * Management capability * Financial condition and cost structure * Longer-term relationship potential

Question 40

What is the weighted-point evaluation system?

Answer 40

an evaluation system to evaluate potential suppliers, track supplier’s performance over time and rank current suppliers.

Question 41

How do you apply the weighted-point evaluation system?

Answer 41

1. assign weights to performance dimensions 2. rate the performance dimensions of each supplier with the regard to each dimension 3. calculate the total score.

Question 42

What are the two types of suppliers assessment?

Answer 42

- subjective method | - objective method

Question 43

What is the subjective supplier assessment method

Answer 43

are used when companies evaluate supplier through personal judgments

Question 44

What is the objective supplier assessment method

Answer 44

attempt to quantify the supplier's performance

Question 45

What tools can be used in supplier assessment? (5)

Answer 45

- Spreadsheets - Personal Assessment - Vendor Rating - Supplier Audit - Cost Modeling

Question 46

How do you use spreadsheets for supplier assessment?

Answer 46

used to systematically compare and assess quotations obtained from suppliers. Important criteria are listed on one axis and the supplier quotations on the other

Question 47

How do you use personal assessment for supplier assessment?

Answer 47

used for suppliers with whom exist close business relationships. Specialists who have experience with the suppliers rate them according to an agreed checklist.

Question 48

How do you use vendor rating for supplier assessment?

Answer 48

Limited to quantitative data only. Entails measuring the aspects of price, quality, and delivery reliability per supplier

Question 49

How do you use supplier audit for supplier assessment?

Answer 49

Entails that the supplier is periodically visited by specialists from the customer. They investigate the production process and quality organization

Question 50

How do you use cost modeling for supplier assessment?

Answer 50

Specialists from the buying company estimate based on the production technology, the cost of the product. This may lead to ‘should cost’ discussions with the supplier.