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1

How do you determine your sourcing method for each item?

Use the portfolio approach

2

Portfolio approach step one

Assess each items supply risk and profit impact

3

Supply risk

The extent to which an item is difficult to source

4

Causes of supply risks

Lack of qualified sources, raw material scarcity, lack of substitutes, complex high logisitical costs, existence of a monopoly or oligpoly

5

Profit impact of step one

A result of the sheet volume of spend or the items unique added value

6

Portfoilo approach step two

Plot each item on the portfolio model

7

Portfolio approach step three

Execute plan of action based on category

8

Routine items

Low value, small volume, individual transactios

9

Routine items action

Simplify and automate

10

Routine items example

Negotiate office supply rate oce and allow employees to make needed purchases using company cards

11

Leverage items

High spend, many qualified suppliers

12

Leverage items action

Max your position by volume discounts and promotong competitive bidding

13

Leverage items example

Heinz ketchup purchase of tomatoes using reverse action

14

Bottleneck items

Few alternate suppliers, complex or new specifications or tecnologies

15

Bottleneck items action

Ensure supply continutity while finding new suppliers

16

Bottleneck items example

Hospital supply manager working with internal customers to change cast colors

17

Critical iteams

High spend, quaility and design of upmost importance. Few qualified suppliers

18

Critical items action

Form and alliance with suppliers and create a contingency plan if supply should fail

19

Critical iteam example

McD creates in depth relationshops with critical suppliers

20

Lowering prices

A simplistic attempt at finding a lower cost for an item

21

Strategic cost management

Focuses on the total cost structures of a product

22

Strategic cost management attempts

To understand causes of costs for an item

23

Strategic cost management allows managers

To focus on reducing spend, price, cost, and total cost of ownership

24

4 tools of strategic cost management

Spend analysis, price analysis, cost analysis, total cost of ownership analysis

25

Spend analysis

What did we spend our money on and who did we spend it with?

26

Three caregories of spend

Direct spend, indirect spend, capital spend

27

A good spend analysis helps understand

Whether we recieved the correct amount for what we paid, who our biggest suppliers are and if their pricing is consistsent across divisions, opportunities available to combine our spending

28

Price analysis

The process of comparing suppliers prices against each other or an external benchmark

29

Price analysis critical

Make sure you are comparing items with the same specifications quaility levels lead times and warranties

30

Cost analysis

Analyzing each individual cost element that makes up the final price.