Exam 2 - Purchasing Management (Section 5)

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1. Purchasing (the Obtaining merchandise, capital equipment; raw materials,

action) services, or maintenance, repair, and operating (MRO)
supplies in exchange for money, or its equivalent.

2. Purchasing (the key business function for acquiring materials, services, &
function) equipment

3. Contracting term often used for the acquisition of services

4. Supply Manage- a newer term that encompasses all acquisition activities

ment beyond the simple purchase transaction

5. Institute of Sup- "Identification, acquisition, access, positioning, and man-

ply Management agement of resources an organization needs or potentially
(ISM) needs in the attainment of its strategic objectives."

6. Merchants Wholesalers and retailers who purchase for resale

7. Industrial Buyers Purchase raw materials for conversion, services, capital

equipment, & MRO supplies

8. Purchase Requi- Document that defines the need for goods and/or services.
sition An internal document. Does not constitute a contractual
relationship with any external party

9. Purchase Order The Buyer's offer to the supplier to acquire goods or

(PO) services. Becomes a legally binding contract only when
accepted by the supplier.

10. The primary Ensure uninterrupted flows of materials and services at

goals of (indus- the lowest total cost, Improve quality of the finished goods
trial) purchasing produced, Optimize customer satisfaction.
are

11. Purchasing con- Actively seeking better materials and reliable suppliers,
tributes to Work with the expertise of strategic suppliers to improve
the organiza- quality and materials, Involving suppliers and purchasing
tion's goals by personnel in new product design and development efforts.

12.
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 Exam 2 - Purchasing Management (Section 5)
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Profit-Leverage A decrease in purchasing expenditures directly increases
Effect profits before taxes (assuming no decrease in quality or
purchasing total cost); BOTTOM LINE IMPACT: $ FOR $

13. Return on Assets A high ROA indicates managerial prowess in generating

(ROA) Effect profits with lower spending

14. Inventory Increased inventory turnovers indicate optimal utilization

Turnover Effect of space and inventory levels, increased sales, avoidance
of inventory obsolesce; INVENTORY is an asset but it is $
tied up

15. Manual Purchas- Step 1: Purchase Requisition - Stating the product, quanti-
ing Process (an ty, and delivery date needed. May originate from the MRP
older process) system.
Step 2: Request for Quotation (RFQ) / Request for Propos-
al (RFP) - Buyer issues a Request for Quotation (RFQ) for
routine / repeat purchased items; Buyer issues a Request
for Proposal (RFP) for products which have not been pre-
viously purchased or purchased from the specific supplier.
Step 3: Purchase Order (PO) - Is the Buyer's offer to the
supplier. Becomes a binding contract when accepted by
supplier.

16. e-Procurement Step 1: Requestor submits a material/purchase requisition

Purchasing - Relevant information such as quantity and date needed
Process (a newer Step 2: Material/purchase requisition goes to the Buyer -
process) At purchasing department (hardcopy or electronically
Step 3: Buyer assigns qualified suppliers to bid - Product
description, closing date, & bid conditions
Step 4: Buyer reviews closed bids & selects a supplier

17. Advantages of Time savings

the e-Procure- Cost savings
ment System Accuracy
Real time
Mobility
Trackability
Management
Benefits to the suppliers
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18. Small Value Pur- Processing costs for small value purchases are minimized
chase Orders through:
Credit Card/Corporate Purchasing Card (P-card)
Blanket or Open-End Purchase Orders
Blank Check Purchase Orders
Petty Cash
Stockless Buying or System Contracting
Standardization & Simplification of Materials & Compo-
nents
Accumulating Small Orders to Create a Large Order
Using a Fixed Order Interval

19. Outsourcing Buying materials and components from suppliers instead

of making them in-house;
Make -vs- Buy is a strategic decision

20. Backward Verti- Refers to acquiring sources of supply

cal Integration

21. Forward Vertical Refers to acquiring customer's operations

Integration

22. Reasons for Mak- Protect proprietary technology

ing No competent supplier
Better quality control
Use existing idle capacity
Control of lead-time, transportation, and warehousing cost
Overall lower cost

23. Cost Advantage Especially for components that are non-vital to the organi-
zation's operations. SUPPLIERS may have economies of
scale

24. Insufficient Ca- A firm may be at or near capacity and subcontracting from
pacity a supplier may make better sense. EXTENDED WORK-
BENCH

25. Lack of Expertise Firm may not have the necessary technology and exper-
tise
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26. Quality Suppliers may have better technology, process, skilled

labor

27. Supply Base is a list of suppliers;

Firms emphasize long-term strategic supplier alliances
CONSOLIDATING VOLUME into one or fewer suppliers,
resulting in a smaller supply base.

28. Preferred Suppli- Product and process technology, and expertise.

ers Provide: Product development and value analysis.
Information on latest trends in materials, processes, or
designs.
Capacity for meeting unexpected demand.
Cost efficiency due to economies of scale.

29. Supplier Selec- Product and process technologies

tion Willingness to share technologies & information
Quality
Service
Cost
Reliability
Order system & cycle time
Capacity
Communication capability
Location

30. Single-source is Reasons for a Single Supplier:

risky. Current To establish a good relationship
trends favor few- Less quality variability
er sources. Lower cost
Transportation economies
Proprietary product or process
Volume too small to split

Reasons for Multiple Suppliers:

Need more capacity
Spread risk of supply disruption
Create competition

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More sources of information
Dealing with special kinds of business

31. Purchasing Or- is dependent on many factors, such as market conditions

ganization and types of materials required

32. Centralized Pur- Purchasing department located at the firm's corporate

chasing office makes all the purchasing decisions

33. Decentralized Individual, local purchasing departments, such as at the

Purchasing plant level, making their own purchasing decisions

34. Advantages of Concentrated volume

Centralization Leveraging purchase volume
Avoiding duplication
Specialization
Lower transportation costs
No competition within units
Common supply base

35. Advantages of Knowledge of local requirements

Decentralization Local sourcing
Less bureaucracy

36. A HYBRID pur- Centralized - Decentralized

chasing organi- Decentralized - Centralized
zation

37. Centralized - De- Centralized - Decentralized (large org w/centralized con-

centralized trol) Large national contracts centralized at the corporate
level and smaller specific items decentralized at the busi-
ness unit level.

38. Decentralized - Decentralized - Centralized (large multiunit org) decen-

Centralized tralized purchasing at the corporate level and centralized
purchasing at business unit level.

39. Reasons for Opportunity to improve quality, cost, and delivery perfor-
Global Sourcing mance

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40. Potential Chal- Requires additional skills and knowledge to deal with
lenges of Global international suppliers, logistics, communication, political
Sourcing environment, and other issues

41. Import Broker or sales agent performs service for a fee

42. Import Merchant buys and takes title to the goods

43. Trading Compa- imports & carries wide variety of goods (like catalogues)
ny

44. Tarrifs Duties, taxes, or customs imposed by the host country for
imported or exported goods.

45. Non-tariff Barri- Quotas, licensing agreements, embargoes, laws, and reg-
ers ulations imposed on imports and exports.

46. Countertrade raw materials are traded for goods and services

47. Public Purchas- Competitive bidding and Sealed Bids

ing for govern-
ment & non-profit
sector is charac-
terized by:

48. Competitive bid- contract is usually awarded to lowest priced responsive &
ding responsible bidder

49. Sealed Bids used to satisfy the Invitation for Bid (IFB) and are opened
in public display

50. Bid Bonds or to ensure that the successful bidder will accept the con-
Surety Bonds tract once awarded

51. Performance work will be on time and meet specifications

Bonds

52. Payment Bonds protection against 3rd party liens not fulfilled by bidder

53.

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 Exam 2 - Purchasing Management (Section 5)
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Federal Acquisi- Removed restrictions on bids less than $100,000. MICRO
tion Streamlining PURCHASES (less than $2,500) can be made without
Act (1994) bidding

54. Buy American US government purchases and 3rd party PURCHASES

Act (1933) using federal funds must buy from United States SOURCE
if the US good is not more than a certain differential above
the foreign good

55. Green Purchases Variety of federal, state, and local initiatives to INCLUDE
environmental and human health CONSIDERATIONS
when making purchases

56. Being A Trusted Having a high level of involvement in the company's bud-
Advisor To The geting and planning cycle. They are considered valued
Business business partners by the organization, not gatekeepers or
administrators.

57. Driving Suppliers Effective at harnessing the intellectual capital of their sup-
To Innovate pliers to bring new and innovative solutions to bear, help-
ing to influence - not just support - the business strategy.

58. Providing Ana- Working closely with the business during operations plan-
lytics-backed In- ning and budgeting periods to provide predictive insights
sights on supply markets, to the point that analytics, market
intelligence and benchmarking are offered on demand as
a service to key stakeholders.

59. Protecting The Have formal risk management programs that includes
Business From completing supplier risk assessments and working with
Risk finance and other stakeholders to determine the best mit-
igation strategy when risk exposure is identified.

60. Taking An Ag- Talent management sets procurement leaders apart from
ile Approach To the pack, They provide more training and invest more
Staffing in retention planning, and they pay higher salaries. They
require substantially fewer FTEs than peer groups and are
more productive overall.

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