Evangelina Gonzalez

Egonza59/0922644
***Answered the questions while I read the book. All my answers are
pretty much verbatim from text***

Chapter 6 Questions 1-20

1. What is procurement? What is its relevance to logistics?

Procurement: refers to the raw materials, component parts,

and supplies brought from outside organizations to support a
companys operations

It is an important activity and closely related to logistics

because acquired goods and services must be entered into
the supply chain in the exact quantities and at the precise
time they are needed

2. Contrast procurements historical focus to its more

strategic orientation today.

Historical focus in many organizations was to achieve the

lowest possible cost from potential suppliers; often times
these suppliers were pitted against each other in cutthroat
competitive involving three- or six-month arms-length
contracts awarded to the lowest bidder. Once this lowest
bidder was chosen, the bidding cycle would almost
immediately start again, and another low bidder would get the
contract for the next several months.

Today, by contrast, procurement has a much more strategic

orientation in many organizations, and a contemporary
procurement manger might have responsibility for reducing
cycle times, play a integral role in product development, or
generating additional revenues by collaborating with the
marketing department.

3. Discuss the benefits and potential challenges of using

electronic procurement cards.
Benefits:
Reduction in the number of invoices
Allow employees to make purchases in a matter of
minutes, as opposed to days, and procurement cards
generally allow suppliers to be paid in a more timely
fashion

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Challenges
Overseas purchases become problematic when considering
currency differences, availability of technology, differences
in card acceptance and cultural issues with the program
4. Discuss three potential procurement objectives.
Potential Procurement Objectives
Supporting organizational goals and objectives
o For example, minimal inventory is an organizations
objective, then procurement probably should not be
attempting to minimize total procurement costs
Managing the purchasing process effectively and efficiently
o Effectively is concerted with how well procurement
keeps its promises, whereas efficiently refers to how
well (or poorly) procurement uses company
resources in keeping its promises
Managing the supply base
o The selection, development, and maintenance of
supply resources
Developing strong relationships with other functional
groups
o Recognizes that the interfunctional consequences of
procurement decisions require more cooperation and
coordination than has traditionally existed between
procurement and the areas such as logistics,
manufacturing, and marketing.
o The lack of cooperation between procurement and
other functions can result in supply shortages, excess
inventory, frequent write-downs, and increased lead
times
Supporting operational requirements
o Procurments focus is on satisfying internal
customers and van be summarized by buying the
right products, at the right prices, from the right
source, at the right specifications, in the right
quantity, for delivery at the right time to the right
internal customer
5. Name and describe the steps in the supplier selection and
evaluation process.
1) Identify need for supply

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2)

3)

4)
5)

a. Arise from a number of considerations, such as the end

of an existing supply agreement or the development of
a new product
Situation analysis
a. Looks at both the internal and external environments
within which the supply decision is to be made.
i. Internal considerations include identification of
the relevant stakeholders, where the supply is
needed, and the appropriate quantity and quality
the supply, as well as application supply policies
ii. External environment include economic
considerations, the legal and regulatory
frameworks controlling the purchase, and the
marketplace within which potential suppliers
operate
Identify and evaluate possible suppliers
a. A myriad of sources can be used to identify possible
suppliers, such as sales people, trade shows, trade
publications, and the Internet. Its important to recognize
and understand the potential advantages and
disadvantages of each source
Evaluating suppliers
a. Can be facilitated if an organization delineates relevant
selection criteria and assigns weights to these criteria
Select suppliers
a. Where an organization chooses or more companies to
supply the relevant product

6. Distinguish between a single sourcing approach and a

multiple sourcing approach.

Single Sourcing: consolidates purchase volume with a single

supplier with the hopes of enjoying lower costs per unit and
increased cooperation and communication in the supply
relationship

Multiple Sourcing: having more than one supplier to increase

amounts of competition, greater risk mitigation and improved
market intelligence can arise

7. What are the two primary approaches for evaluating

suppliers? How do they differ?

There are two primary approaches for evaluating suppliers:

process based and performance based

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o Process-based evaluation is an assessment of the
suppliers service and/or production process
o Performance-based evaluation is focused on the
suppliers actual performance on a variety of criteria,
such as cost and quality
8. Discuss the factors that make supplier selection and
evaluation difficult.

Generally involves multiple criteria, and these criteria can

vary both in number and importance, depending on a
particular situation
Some vendor selection criteria may be contradictory, it is
important to understand potential trade-offs between them
The evolution of business practices and philosophes, such as
just-9j-t9kel green purchasing, and supply chain management,
maybe require new selection criteria or the reprioritization of
existing criteria
9. Distinguish between supplier audits and supplier
scorecards. When should each be used?

Supplier Audit: involves an on site visit to a suppliers facility

o Process-based

Supplier Scorecards: report performance information to their

suppliers
o Performance-based

10.
Describe Kraljics Portfolio Matrix. What are the four
categories of this segmentation approach?

Kraljics Portfolio Matrix is used by many managers to classify

corporate purchases in terms of their importance and supply
complexity with a goal of minimizing supply vulnerability and
getting the most out of the firms purchasing power
o Noncritical
o Leverage
o Strategic
o Bottleneck

11.
Define supplier development, and explain why it is
becoming more prominent in some organizations.

Supplier Development: refers to aggressive procurement

involvement not typically part of supplier selection and can

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include a purchaser initiating contact with a supplier or a
purchaser establishing prices, terms, and conditions, among
other behaviors
o The myriad of inefficiencies associate with suppliers
initiating marketing efforts toward purchases, such as
suppliers possessing inadequate, insufficient, or
untimely information
o More proactive and aggressive procurement is that the
purchaser may be aware of important benefits, such as
reduced inventory and improved forecasting accuracy,
which are unknown to the supplier
o Achieving competitive advantage in the supply chain is
predicated on purchasers adopting a more aggressive
approach so as to compel suppliers to meet the
necessary requirements
12.
What are the components of the global sourcing
development model presented in this chapter?

Global procurement (sourcing), which refers to buying

components and inputs anywhere in the world, is driven by
two primary reasons, namely, the factor-input strategy and
the market-access strategy
o Planning
o Specification
o Evaluation
o Relationship management
o Transportation and holding costs
o Implementation
o Monitoring and improving

13.
What are some of the challenges of implementing a
global sourcing strategy?

As organizations continue to expand their supply bases, many

are realizing hidden cost factors are affecting the level of
benefits that were projected to be achieved through this
approach
o Increased costs of dealing with suppliers outside the
domestic market, duty and tariff changes that occur
over the life of a supply agreement, increased
inventory-related costs associated with global supply
chains, and rising levels of logistics cost volatility that
can occur unexpectedly

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14.
Pick, and discuss, two components of the global
sourcing development model presented in this chapter.

Planning is the first step in global procurement and involves

an honest assessment of global sourcing opportunities and
challenges. The outcome of this stage should be a set of
global procurement policies and procedures that are
consistent with an organizations overall objectives

Monitoring and improving means that performance measures

must be established for global procurement systems and that
these measures should be reviewed on a regular basis.
Comparisons can be made between actual and expected
performance, and the results of these comparisons can be
used to improve the global sourcing process

15.
What is total cost of ownership and why is it
important to consider?

16.

Total Cost of Ownership: firms consider all the costs that can
be assigned to the acquisition, use, and maintenance of a
purchase
o Logistics costs related to the typically longer delivery
lead times associated with global shipments are a key
consideration. Ideally, firms should create their own TCO
models that provide a more realistic view of the costs of
global sourcing

Why are some firms considering near-sourcing?

Recently, rising transportation and energy costs, growing
desires to be able to quickly adapt to changes market trends,
along with risk and sustainability concerns have all influenced
an examination of near-sourcing (procuring products from
supplier closer to ones own facilities) by many firms

17.
Name, and give an example of, the five dimensions
of socially responsible purchasing.

Diversity
o Minority or women-owned organization
The environment

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o Waste reduction and the design of products for reuse or

recycling
Human rights
o Child labor laws as well as sweatshop labor
Philanthropy
o Employee volunteer efforts and philanthropic
contributions
Safety
o Safe transportation of purchased products, as well as
the safe operation of relevant facilities

18.
Discuss some of the ethical issues that are
associated with procurement.

Areas of ethical concern in procurement include gift giving

and gift receiving; bribes (money paid before an exchange)
and kickbacks (money paid after an exchange); misuse of
information; improper methods of knowledge acquisition;
lying or misrepresentation of the truth; product quality (lack
thereof); misuse of company assets, to include abuse of
expense accounts; and conflicts of interest, or activity that
creates a potential conflict between ones personal interest
and the employers interest

19.
Distinguish between excess, obsolete, scrap, and
waste materials.

Excess: stock that exceeds the reasonable requirements of an

organization, perhaps because of an overly optimistic demand
forecast

Obsolete: not likely to ever be used by the organization that

purchased it

Scrap: materials that are no longer serviceable, not been

discarded, or are a by-product of the production process

Waste: those that have been spoiled, broken or otherwise

rendered unfit for further use or reclamation

20.
Should investment recovery be the responsibility of
the procurement manager? If yes, why? If not, which
party (parties) should be responsible for investment
recovery?

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Yes they should be responsible. Procurement creates excess,

obsolete, scrap, and waste materials therefore they should
manage it.