Key words Flashcards
(80 cards)
1
Q
Purchasing:
A
The management of the company’s external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured under the most favourable conditions.
2
Q
Supply
A
Supply includes at least purchasing, materials management, incoming inspection and receiving. Supply is used when relating to buying based upon total cost of ownership in a manufacturing environment.
3
Q
Value chain
management
A
All stakeholders belonging to the same value chain are challenged to improve the (buying) company’s value proposition to its final end-customers i.e. consumers.
4
Q
Primary activities
A
Primary activities are those activities that are required to offer the company’s value proposition to its customers. They consist of inbound logistics, operations, outbound logistics, marketing and sales and customer service activities.
5
Q
Support activities
A
Those value activities that are required to support the company’s primary activities. These include procurement, technology development, human resources management and facilities management (i.e. those activities aimed at maintaining the firm’s infrastructure).
6
Q
Raw materials
A
Materials which have undergone no transformation or a minimal transformation, and they serve as the basis materials for a production process.
7
Q
Porter differentiates between five generic categories of primary activities:
A
Inbound logistics.
These activities are related to receiving, storing and disseminating inputs to the production process, such as inbound transportation, incoming inspection, materials handling, warehousing, inventory control and reverse logistics.
Operations.
Activities associated with transforming inputs into the final product, such as machining, assembly, packaging, equipment maintenance, testing, printing and facility
operations.
Outbound logistics.
These are activities associated with collecting, storing, and physically distributing the final product to customers, such as finished goods warehousing, materials handling, outbound transportation, order processing and scheduling.
Marketing and sales. These activities relate to advertising, promotion, sales, distribution channel selection, the management of channel relations and pricing.
Services.
Activities associated with providing services to customers to enhance or maintain the value of the product, such as installation, repair and maintenance, training, parts supply and product adjustment.
8
Q
Support activities are grouped into four categories:
A
Procurement.
Relates to the function of purchasing inputs used in the firm’s value chain. These may include raw materials, supplies, and other consumable items as well as assets such as machinery, laboratory equipment, office equipment and buildings. These examples illustrate that purchased inputs may be related to primary activities
as well as support activities. This is one reason why Porter classifies procurement as a support activity and not as a primary activity.
Technology development.
‘Technology’ has a very broad meaning in this context,
since in Porter’s view every activity embodies technology, be it know-how, procedures or technology embodied in processes, systems or product designs. Most value activities use a technology that combines a number of different sub-technologies involving different scientific disciplines.
Human resources management.
These are all the activities directed at recruiting, hiring,
training, developing and compensation of all types of personnel on the company’s payroll, active in both primary and support activities.
Firm infrastructure.
The whole company is the customer of these activities. Infrastructure does not support one or more primary activities – rather, it supports the entire set of company processes. Examples include management, planning, finance, accounting, legal, government affairs, quality management and facilities management. In larger
companies, which often consist of different operating units, one sees these activities divided among headquarters and the operating companies. This division of these tasks between the headquarters and the business units is often the subject of discussion, which is why it changes so frequently.
9
Q
Facilities management
A
Relates to the management (planning, execution and control), and the realization of housing and accommodation, the services related to these, and other means in order to enable the organization to realize its mission
10
Q
Direct purchasing
A
Purchasing of all materials and products that are used for manufacturing companies’ end products.
11
Q
Investment goods or
capital equipment
A
Products which are not consumed immediately, but whose purchasing value is depreciated during its economic life-cycle.
12
Q
Indirect purchasing
A
Purchasing of all materials, components and services that are used to support the company’s infrastructure and back-office activities.
13
Q
Expediting
A
Following up on a purchase order to make sure that the supplier is going to perform as it has confirmed through the purchase order confirmation. There are three types of expediting, i.e. routine status check, advanced status check and field expediting.
14
Q
Quality
A
Quality refers to the total of features and characteristics of a product or service that bear on its ability to satisfy a given need (American National Standards Institute). Quality is meeting (internal or external) customer’s requirements that have been formally agreed between a customer and a supplier.
15
Q
Purchasing function
A
Covers activities aimed at determining the purchasing specifications based upon ‘fitness for use’, selecting the best possible supplier and developing procedures and routines to be able to do so, preparing and conducting negotiations with the supplier in order to establish an agreement and to write up the legal contract, placing the order with the selected supplier or to develop efficient purchase order and handling routines, monitoring and control of the order in order to secure supply (expediting), follow-up and evaluation (settling claims, keeping product and supplier files up-todate, supplier rating and supplier ranking).
16
Q
Total cost of
ownership (TCO)
A
Relates to the total costs that the company will incur over the lifetime of the product that is purchased.
17
Q
Sourcing
A
Finding, selecting, contracting and managing the best possible source of supply on a worldwide basis.
18
Q
Category
A
A group of products which can be substituted for one another by a consumer; examples include cereals, bakery, household products, body care and so on.
19
Q
Sourcing strategy
A
Identifies for a certain category from how many suppliers to buy, what type of relationship to pursue, contract duration, type of contract to negotiate for, and whether to source locally, regionally or globally.
20
Q
Partner
A
A (supplier) partner is defined as a firm with whom your company has an on-going buyer–seller relationship, involving a commitment over an extended period, a mutual sharing of information and a sharing of risks and rewards resulting from the relationship.
21
Q
Purchasing
management
A
Relates to all activities necessary to manage supplier relationships in such a way that their activities are aligned with the company’s overall business strategies and interests.
22
Q
Request for
information (RFI)
A
Suppliers are invited to submit general information that may help them to qualify for a potential tender.
23
Q
Request for quotation
RFQ
A
Suppliers are invited to submit a detailed bid which meets the requirements as laid down in the request for quotation against the lowest possible price (identical to request for tender).
24
Q
DuPont analysis
A
Financial diagnostic tool to calculate the company’s return on investment based upon sales margin and capital turnover ratio. Used to assess the effect of a 2% purchasing saving on the company’s return on investment (ROI).
25
Payment terms
```
Payment terms relate
to what, how and when
the buyer will pay for
the products and
services delivered by
the supplier.
```
26
Indirect materials
```
All purchased
materials and services
that do not become
part of the company’s
value proposition. May
be classified into
MRO-supplies,
investment goods (also
referred to as capital
expenditure, or
CAPEX) and services
(identical to non-
BOM-materials or
non-production
materials).
```
27
Global sourcing
```
Proactively integrating
and co-ordinating
common items and
materials, processes,
designs, technologies
and suppliers across
worldwide purchasing,
engineering and
operating locations.
```
28
Corporate social
| responsibility
```
How to contribute to a
better world, a better
environment and better
labour conditions. The
idea is to develop
business solutions in
such a way that
requirements of the
current world
population are met
without doing harm to
the needs of future
generations.
Companies need to
balance the interests of
customers, employees,
the environment and
its shareholders, i.e.
serving the needs of
‘People, Planet,
Profit’.
```
29
Early supplier
| involvement (ESI)
```
Situation where the
supplier is involved by
the buyer in an early
stage of the new
product development
process.
```
30
Supply-chain
| management
```
The management of all
activities, information,
knowledge and
financial resources
associated with the flow
and transformation of
goods and services up
from the raw materials
suppliers, component
suppliers and other
suppliers in such a way
that the expectations of
the end-users of the
company are met or
surpassed.
```
31
Value chain
```
Composed of value
activities and a margin
which is achieved by
these activities. Value
activities can be
divided into primary
activities and support
activities. The margin
represents the value
that customers want to
pay extra for the
company’s efforts
compared with the
costs that were
required for these.
```
32
Budget
```
A budget serves as a
vehicle for delegating
activities and
responsibilities to
lower management
levels in the
organization.
```
33
Buying processes
```
Includes determining
the purchasing needs,
selecting the supplier,
arriving at a proper
price, specifying terms
and conditions, issuing
the contract or order,
and following up to
ensure proper delivery
and payment.
```
34
Derived demand
```
Most companies sell to
other companies. Few
manufacturing
companies deliver
directly to the enduser.
For this reason
developments in
industrial markets are
often influenced by
changes which occur
in the end-user
markets.
```
35
Routine products
```
These products
produce few technical
or commercial
problems from a
purchasing point of
view. They usually
have a small value per
item and there are
many alternative
suppliers.
```
36
Bottleneck products
```
These items represent
a relatively limited
value in terms of
money but they are
vulnerable with regard
to their supply. They
can only be obtained
from one supplier.
```
37
Task variables
```
Are those variables
that are related to the
tasks, responsibilities
and competences
assigned by the
organization to the
persons involved in the
purchase decisionmaking
process.
```
38
Non-task variables
```
Variables that are
related to the
personalities of the
persons involved in the
purchase decisionmaking
process.
```
39
Decision-making
| unit (DMU)
```
DMU relates to all
those individuals and
groups who participate
in the purchasing
decision-making
process, who share
some common goals
and the risks arising
from the decisions
(identical to buying
centre).
```
40
Buying centre
```
Relates to all those
individuals and groups
who participate in the
purchasing decisionmaking
process, who
share some common
goals and the risks
arising from the
decisions (identical to
decision-making unit).
```
41
Decision-making
| unit (DMU)
```
DMU relates to all
those individuals and
groups who participate
in the purchasing
decision-making
process, who share
some common goals
and the risks arising
from the decisions
(identical to buying
centre).
```
42
Buying centre
```
Relates to all those
individuals and groups
who participate in the
purchasing decisionmaking
process, who
share some common
goals and the risks
arising from the
decisions (identical to
decision-making unit).
```
43
Technical
| specification
```
Describes the technical
properties and
characteristics of the
product as well as the
activities to be
performed by the
supplier.
```
44
Supplier selection
```
Supplier selection
relates to all activities,
which are required to
select the best possible
supplier and includes
determining on the
method of
subcontracting,
preliminary
qualification of
suppliers and drawing
up the ‘bidders’ list’,
preparation of the
request for quotation
and analysis of the bids
received and selection
of the supplier.
```
45
Output
Relates to the
functionality of the
service instead of the
activity itself.
46
Penalty clauses
```
Part of the contract
which will stipulate
what will happen if a
supplier does not meet
its obligations.
```
47
Components
| .
```
Components are
manufactured goods
which will not undergo
additional physical
changes, but which
will be incorporated in
a system with which
there is a functional
relationship by joining
it with other
components
```
48
Ordering
```
Ordering refers to the
placing of purchase
orders at a supplier
against previously
arranged conditions or
when orders are
placed directly at the
supplier, without
questioning the
supplier’s conditions.
```
49
Straight rebuy
```
Relates to the
acquisition of a known
product from a known
supplier (identical to
routine buy).
```
50
New-task situation
```
Situation when the
organization decides to
buy a completely new
product, supplied by
an unknown supplier.
```
51
Modified rebuy
```
Relates to a situation
when the organization
wants to purchase a
new product from a
known supplier, or an
existing product from a
new supplier.
```
52
E-procurement solutions
```
Relate to all webenabled
solutions aimed
at supporting the
purchasing process and
all electronic data
exchange that is needed
for efficient transaction
processing.
E-procurement solutions
can be divided into
three types: electronic
marketplaces, electronic
auctions (e-auctions)
and electronic
catalogues, and order
and payment solutions
(order-to-pay solutions).
```
53
Functional
| specification
Describes the
functionality which the
product must have for
the user.
54
Outsourcing
```
Outsourcing means
that the company
divests itself of the
resources to fulfil a
particular activity to
another company, to
focus more effectively
on its own competence.
The difference with
subcontracting is the
divestment of assets,
infrastructure, people
and competencies.
```
55
Purchase (order)
| specification
```
Relates to all
specifications needed
to select the right
supplier including
quality specifications,
logistics specifications,
maintenance
specifications, legal
and environmental
requirements and a
target budget
```
56
Tenders
```
Situations where a
buyer asks for bids
from different
suppliers, creating a
level playing field
(identical to
competitive bidding).
```
57
Bidders’ short list
```
Includes those
suppliers that meet the
buyer’s prequalification
criteria
and who will be
requested to submit a
detailed bid.
```
58
Cost reductions
```
Purchasing cost
reductions are
sustainable in
character. These may
be the result from a
change of
specification, a change
of supplier or omitting
an unnecessary
product quality
requirement.
```
59
Price change clause
```
An index that is agreed
between buyer and
seller to accommodate
for price changes of
the supplier’s cost
structure.
```
60
Escalation clause
```
Price is linked to a
price adjustment
formula (index), which
is based on external
factors such as
material costs or
changes in labour
costs.
```
61
Electronic
| marketplace
```
Is a marketplace on the
Internet where, with
the support of Internet
technology,
transactions between
business-to-business
partners can be made.
```
62
Electronic auctions
| e-auctions
```
Electronic auctions
(e-auctions) are tools
used by the buyer to
invite suppliers to bid
simultaneously based
on a predetermined
purchasing
specification using web
technology.
```
63
Order-to-pay solutions
```
systems that are used
to manage the
ordering process,
ranging from
requisitioning, to
ordering, supplier
delivery and payment.
```
64
Request for proposal
| RFP
```
Suppliers are invited to
submit a first proposal
prior to the buyer’s
invitation to tender
which meets the
requirements as laid
down in the request for
quotation.
```
65
Reverse auction
```
An e-auction which is
used by buyers to
enforce competitive
bidding among a
limited number of
prequalified suppliers
based on a starting
price that is lowered
during the auction.
```
66
Forward auction
```
An e-auction which is
used by suppliers to
enforce bidding among
a number of
prospective buyers
based on a starting
price that is increased
during the auction.
```
67
Electronic catalogues
| and ordering systems
```
Used for more efficient
order handling,
improved logistics and
improved and bettercontrolled
payments.
May be integrated with
the company’s ERP
system.
```
68
Maverick buying
```
relates to the
percentage of
purchases made
outside existing
corporate purchasing
agreements.
```
69
Purchasing
| management
```
Relates to all activities
necessary to manage
supplier relationships
in such a way that
their activities are
aligned with the
company’s overall
business strategies
and interests.
```
70
Maintenance, repair
and operating
materials (MRO
items)
```
These products,
sometimes referred to
as indirect materials
or consumable items,
represent materials
which are necessary
for keeping the
organization running
in general, and for the
support activities in
particular.
```
71
Finished products
```
These encompass all
products which are
purchased to be sold,
after negligible added
value, either together
with other finished
products or
manufactured products
(identical to trade
items).
```
72
Supply-chain
```
A series of companies
(links) in which the
consecutive stages of
production of an
economic product take
place, from primary
producer to final
consumer.
```
73
Competitive pricing
```
The price paid for a
product is based upon
competitive tendering
among a number of
preselected suppliers.
E-auctions or other
formal tendering
vehicles may be used.
```
74
Purchasing
| performance
```
The extent to which the
purchasing function
is able to realize its
predetermined goals
at the sacrifice of a
minimum of the
company’s resources,
i.e. costs.
```
75
Learning curve
```
The learning curve
was originally
developed in the
American aircraft
industry. It was
discovered that the
cost price per airplane
decreased at a fixed
percentage as
experience, i.e. the
cumulative production
volume of a particular
type of aircraft,
doubled.
```
76
Quality costs
```
Relate to three types of
costs: prevention costs
(the costs of preventing
errors); assessment
costs (the costs related
to the timely
recognition of errors);
and correction costs
(the costs that result
from correcting
mistakes).
```
77
Purchasing market
| research
```
The systematic
gathering,
classification and
analysis of data
considering all
relevant factors that
influence the
procurement of goods
and services for the
purpose of meeting
present and future
company requirements.
```
78
Purchasing and
supply development
model
```
This model identifies six
stages of development
over time, indicating
how purchasing and
supply may develop in
terms of professionalism
within a company.
These six stages are:
transaction orientation;
commercial orientation;
co-ordinated
purchasing; internal
integration; external
integration; and valuechain
integration.
```
79
Purchasing
performance
measurement
```
Four dimensions are
suggested on which
measurement and
evaluation of
purchasing activities
can be based: (1) a
price/cost dimension;
(2) a product/quality
dimension; (3) a
logistics dimension;
and (4) an
organizational
dimension.
```
80
Residential
| engineering
```
Situation where
engineers from the
supplier on a more or
less permanent basis
are co-located at the
buyer’s organization,
in order to work on
design or
manufacturing
problems which
appear during the
successive stages of
development.
Residential
engineering also
relates to a situation
where a large OEM
has placed its own
engineering specialists
at the supplier’s
premises in order to
resolve a variety of
technical problems.
```
