Chapter 16: Global Sourcing And Procurement

Question 1

What is strategic sourcing?

Answer 1

Development/management of supplier relationships

Question 2

What is a request for proposal?

Answer 2

Used for purchasing items that are more complex or expensive where they may be a # of potential vendors

Question 3

What is vendor managed inventory?

Answer 3

A customer allows the supplier to manage items for them

Question 4

What is the bullwhip effect?

Answer 4

The phenomenon of variability magnification as we move from customer to producer

Question 5

What is continuous replenishment? What company is an example of it?

Answer 5

~ inventory is replaced frequently
~ Campbell soup
~ Campbell uses electronic data exchange (EDI)
~ reduces retailers inventory from 4 to 2 weeks of supply

Question 6

What are the benefits of continuous supply replenishment to retailers?

Answer 6

1. Inventory carrying cost for a year = 25% of product cost
2. Two-week inventory reduction saves 1% of sales
3. Retailers profit is 2% of sales
4. Profits increase by 50%!
5. Incentive for retailer to carry Campbell’s products
6. Campbell’s sales doubled with the participating retailers

Question 7

What are the characteristics of functional products?

Answer 7

~ found in grocery stores and gas stations
~ product life cycle of 2+ years
~ contribution margin of 5-20%
~ only 10-20 product variations
~ average forecast error of only 10%
~ lead time for MTO products from 6mo-1yr

Question 8

What are the characteristics of innovative products?

Answer 8

~ higher profit margins
~ newness makes demand unpredictable
~ life cycle of just a few months due to imitators

Question 9

What is an efficient supply chain?

Answer 9

~ low demand uncertainty
~ low supply uncertainty
~ grocery, basic apparel, food, oil & gas
~ best capacity utilization, highest cost efficiency

Question 10

What is a responsive supply chain?

Answer 10

~ high demand uncertainty
~ low supply uncertainty
~ fashion apparel, computers, popular music
~ build to order, mass customization

Question 11

What is a risk-hedging supply chain?

Answer 11

~ low demand uncertainty
~ high supply uncertainty
~ hydroelectric power, some food products
~ pooling and sharing resources to share risk

Question 12

What is an agile supply chain?

Answer 12

~ high demand uncertainty
~ high supply uncertainty
~ telecom, high end computers, semiconductors
~ responsive to customer needs, risks of supply shortages share hedged by pooling inventory

Question 13

What are the three trade offs?

Answer 13

1. Service
2. Cost
3. Agility

Question 14

What is outsourcing?

Answer 14

~ moving some of a firm’s internal abilities and decision responsibilities to outside providers
~ creates a competitive advantage while reducing cost

Question 15

What are the reasons to outsource?

Answer 15

1. Financial
   ~ improve return on assets by reducing inventory & selling unnecessary assets
   ~ generating cash by selling low-return entities
   ~ gain access to new markets
   ~ turn fixed costs into variable costs
2. Improvement
   ~ improve quality and productivity
   ~ shorten cycle time
   ~ obtain expertise, skills, and tech
   ~ improve risk management
   ~ improve credibility
3. Organizational
   ~ improve effectiveness by focusing on what the firm does best
   ~ increase flexibility to demand
   ~ increase product and service value

Question 16

What is capability sourcing?

Answer 16

~ see: 7/11 outsourcing strategy

Question 17

What is the green sourcing process?

Answer 17

1. Assess the opportunity
2. Engage sourcing agents
3. Assess the supply base
4. Develop sourcing strategy
5. Implement sourcing strategy
6. Institutionalize the sourcing strategy

Question 18

What are the three parts of the total cost of ownership?

Answer 18

1. Acquisition costs
   ~ purchase planning costs
   ~ quality costs
   ~ taxes
   ~ purchase price
   ~ financing costs
2. Ownership costs
   ~ energy costs
   ~ maintenance and repair
   ~ financing
   ~ supply chain network costs
3. Post ownership costs
   ~ disposal
   ~ environmental costs
   ~ warranty costs
   ~ product liability costs
   ~ customer dissatisfaction costs

Question 19

What is sourcing performance measure?

Answer 19

~ inventory turnover: how often inventory is replaced in a year

~ cost of goods sold: annual cost for a company to produce goods or services

~ avg. aggregate inventory value: total value of all items in inventory

~ weeks of supply: how many week’s worth of inventory is in the system at a point in time

Question 20

What is inventory turnover?

Answer 20

= cost of goods sold / avg. inventory value

Question 21

What is weeks of supply?

Answer 21

= avg. inventory value / cost of goods sold x 52

= inventory turnover x 52