SCM FINAL PART 2 Flashcards
Why is Supply Chain Management critical?
Firms not only compete against global competitors, but against their competitors supply chains
if a company wants to compete globally, they have to source globally
Advances in information systems have been a catalyst for global sourcing efforts
What is the Formula for Profit Margin?
Net Income / Sales
What is the Formula for Return on Assets (ROA)?
Net Income / Total Assets
higher ROA preferred
What is the profit leverage effect?
the effect of $1 in cost savings increasing pretax profits by $1 and a $1 increase in sales increasing pretax profits only by $1 multiplied by the pretax profit margin
effort to reduce operating expenses by reducing purchasing costs instead of focusing on increasing sales profit
What are the Steps of the Sourcing Process?
Spend Analysis
Profile (internally and externally)
Develop Sourcing Strategy
Screen Suppliers and Make Selection Criteria
Conduct Selection
Negotiate/Implement Agreements
What is the Spend Analysis?
looking at the purchasing data in an effort to better understand spending patterns and identify opportunities for improvement
What is Profiling?
understanding everything about a sourcing category when it coulld ultimately have an impact on the sourcing strategy
In Profiling, what is Industry Analysis?
profiles the major forces and trends that are impacting an industry, including pricing, competition, regulatory forces, substitution, technology changes, supply/demand trends
What is the make or buy decision?
high level decision regarding which products or services will be provided internally and which will be provided by externally supply chain partners
What are the advantages of Insourcing?
High degree of control over operations
economies of scale
Allows for development of core competencies, which allows company to do something competitors will find difficult or impossible to copy
What are the disadvantages of Insourcing?
decreases a firm’s flexibility
long-term commitments
What are the advantages of Outsourcing?
Greater flexibility and alternate sources of supply
Less investment needed upfront
Obtain benefits from partner companies (access to new technologies, skills, and markets)
What are the disadvantages of Outsourcing?
Supplier communication issues
Supplier production issues
Control issues because buying firms need to constantly monitor the quality, availability, confidentiality, and performance of outsourced goods
risk of losing core competencies
What is total cost analysis?
process of identifying, qualifying, and assigning costs to a specific sourcing option
What does Dynamic mean in Total Cost Analysis?
long-run
analyze the total cost to insource (make) vs. The total cost to outsource (buy)
What does Static mean in Total Cost Analysis?
short-run
What are Direct Costs (variable costs)
costs that are easily attributable to the unit of production or service
What are Indirect Costs (fixed costs)
difficult to assign to a unit of production or service
Whats a direct cost associated with Insourcing?
Direct material
Direct labor
Freight costs
Variable overhead
Whats a direct cost associated with Outsourcing?
Price (from the invoice)
Freight (shipping costs)
Whats a indirect cost associated with Insourcing?
Supervision
Administrative support
Supplies
Maintenance costs
Equipment depreciation
Building lease
Fixed overhead
Whats a indirect cost associated with Outsourcing?
Purchasing
Receiving
Quality control
What is the indifference point?
point where make and buy intersect is where the firm is indifferent about whether an item is made or bought
set equations equal and solve
What is the formula for the Total Cost to Make Something?
fixed Costs + (Variable Costs * Quantity)
