Procurement

Question 1

What is sourcing?

Answer 1

Finding sources of supply, guaranteeing continuity in supply, ensuring alternative sources of supply and gathering knowledge of procurable resources.

Question 2

What is purchasing management?

Answer 2

All activities that are required to manage supplier relationships.

Question 3

What are the stages in the strategic sourcing process?

Answer 3

1. Assess Opportunities
2. Profile Internally & Externally
3. Develop the Sourcing Strategy
4. Screen Suppliers and Create Selection Criteria
5. Conduct Supplier Selection
6. Negotiate and Implement Agreements

Question 4

What is a tool for assessing opportunities?

Answer 4

Spend Analysis

Question 5

What is Spend Analysis?

Answer 5

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

Question 6

What are the two approaches to creating profiles?

Answer 6

1. Category profile
2. Industry analysis

Question 7

What is a category profile?

Answer 7

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

Question 8

What is industry analysis?

Answer 8

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

Question 9

What is the Make-or-Buy Decision?

Answer 9

A high-level, often strategic, decision regarding which products or services will be provided internally and which will be provided by external supply chain partners.

Question 10

What is insourcing?

Answer 10

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

Question 11

What is outsourcing?

Answer 11

The use of supply chain partners to provide products or services.

Question 12

What are the advantages of insourcing?

Answer 12

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

Question 13

What are the disadvantages of insourcing?

Answer 13

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

Question 14

What are the advantages of outsourcing?

Answer 14

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

Question 15

What are the disadvantages of outsourcing?

Answer 15

• Possibility of choosing a bad supplier
• Loss of control over the process and core technologies
• Communication/coordination challenges
• Increased risk of supply chain disruption
• Corporate social responsibility (CSR) risks

Question 16

What factors favour insourcing?

Answer 16

• Low Environmental uncertainty
• Low Competition in the supplier market
• Low Ability to monitor supplier’s performance
• High Relationship of product/service to buying firm’s core competencies

Question 17

What factors favour outsourcing?

Answer 17

• High Environmental uncertainty
• High Competition in the supplier market
• High Ability to monitor supplier’s performance
• Low Relationship of product/service to buying firm’s core competencies

Question 18

What is Total Cost Analysis?

Answer 18

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

Question 19

What are direct costs?

Answer 19

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

Question 20

What are indirect costs?

Answer 20

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

Question 21

What are the direct costs of insourcing?

Answer 21

• Direct material
• Direct labor
• Freight costs
• Variable overhead

Question 22

What are the indirect costs of insourcing?

Answer 22

• Supervision
• Administrative support
• Supplies
• Maintenance costs
• Equipment depreciation
• Utilities
• Building lease
• Fixed overhead

Question 23

What are the direct costs of outsourcing?

Answer 23

• Price (from invoice)
• Freight costs

Question 24

What are the indirect costs of outsourcing?

Answer 24

• Purchasing
• Receiving
• Quality control

Question 25

What is portfolio analysis?

Answer 25

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 26

What are the 4 categories in the Kraljic Matrix?

Answer 26

1. Bottleneck 2. Critical/Strategic 3. Routine 4. Leverage

Question 27

What is The Routine Quadrant?

Answer 27

Readily available products or services (small % of total).

Question 28

What is The Leverage Quadrant?

Answer 28

Standardized and readily available products or services (large % of total).

Question 29

What is The Bottleneck Quadrant?

Answer 29

Unique or complex products or services supplied by few suppliers.

Question 30

What is The Critical Quadrant?

Answer 30

Unique or complex products or services supplied by few suppliers, representing large % of total.

Question 31

What are the four sourcing strategies?

Answer 31

1. Single sourcing 2. Multiple sourcing 3. Cross sourcing 4. Dual sourcing

Question 32

What is single sourcing?

Answer 32

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

Question 33

What is multiple sourcing?

Answer 33

The buying firm shares its business across multiple suppliers.

Question 34

What is cross sourcing?

Answer 34

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

Question 35

What is dual sourcing?

Answer 35

Using two suppliers for the same purchased product or service.

Question 36

What are the criteria to evaluate suppliers?

Answer 36

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

Question 37

What is the weighted-point evaluation system?

Answer 37

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

Question 38

What is the method of the weighted-point evaluation system?

Answer 38

- Assign weights to performance dimensions. - Rate the performance of each supplier with regard to each dimension. - Calculate the total score.

Question 39

What are the two types of supplier assessment?

Answer 39

1. Subjective methods 2. Objective methods

Question 40

What are subjective methods?

Answer 40

Methods that are used when companies evaluate suppliers through personal judgments.

Question 41

What are objective methods?

Answer 41

Objective methods attempt to quantify the supplier’s performance.

Question 42

What techniques and tools are used for supplier assessment?

Answer 42

- Spreadsheets - Personal assessment - Vendor rating - Supplier audit - Cost modeling

Question 43

What are spreadsheets?

Answer 43

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

Question 44

What is personal assessment?

Answer 44

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

Question 45

What is vendor rating?

Answer 45

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

Question 46

What is suplier auditing?

Answer 46

Entails that the supplier is periodically visited by specialist(s) from the customer. They investigate the production process and quality organization.

Question 47

What is cost modeling?

Answer 47

- 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.

Question 48

What is the difference between supplier auditing and vendor rating:

Answer 48

1. Supplier auditing - Focused on the future - Applied to new and current suppliers - Qualitative - It has a broad scope - Time consuming - Subjective - Co-operation with suppliers 2. Vendor rating - Based on historical data - Applied to current suppliers - Quantitative - Limited scope - Factual - Based on internal administrative data

Question 49

What is ISO 9001?

Answer 49

A family of standards supported by the International Organization for Standardization.

Question 50

What are the goals of ISO 9001?

Answer 50

- Meet the customer’s quality requirements and applicable regulatory requirements. - Enhance customer satisfaction. - Achieve continual improvement of performance in pursuit of these objectives.

Question 51

When do we use competitive bidding?

Answer 51

* The buying firm can provide qualified suppliers with clear descriptions of the items or services to be purchased; * Volume is high enough to justify the cost and effort; and * The buying firm does not have a preferred supplier.

Question 52

When do we use negotiation?

Answer 52

* The item is a new and/or technically complex item with only vague specifications; * The purchase requires agreement about a wide range of performance factors; * The buyer requires the supplier to participate in the development effort; and * The supplier cannot determine risks and costs without additional input from the buyer.