Purchasing and Supply Chain Management

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Questions and Answers

What is the primary purpose of a purchase requisition?

To detail the needs for materials (correct)

To track delivery schedules

To analyze supplier quotations

To issue purchase orders directly

How do modern electronic requisition systems enhance purchasing efficiency?

By increasing the amount of paperwork

By autofilling details and controlling approvals (correct)

By sending purchase orders without analysis

By eliminating supplier selection

What is the appropriate action when no approved supplier is available for a new item?

Search for a new supplier using online resources (correct)

Place a direct order to the nearest supplier

Wait until the item is needed to find a supplier

Contact only the supplier in the last purchase order

What is the function of a request for quotation in the purchasing process?

To gather competitive quotes from suppliers Signup and view all the answers

Which factors are crucial for analyzing quotations received from suppliers?

Price, compliance, and delivery terms Signup and view all the answers

What role does the purchasing department play in the procurement process?

They conduct supplier selection and quotation analysis Signup and view all the answers

What is considered when choosing a supplier for items with vague specifications?

Technical suitability and price compromises Signup and view all the answers

What must occur after receiving and analyzing purchase requisitions?

Issuing purchase orders based on the requisitions Signup and view all the answers

What is the main objective of compliance and risk management in procurement?

To ensure adherence to regulations and manage risks Signup and view all the answers

Which purchasing method involves acquiring goods only when needed and in the necessary quantity?

Purchasing by Requirement Signup and view all the answers

What is a major advantage of market purchasing?

It allows for lower purchase prices due to market conditions Signup and view all the answers

Which risk is associated with market purchasing?

Losses from incorrect market judgments Signup and view all the answers

What is the focus of speculative purchasing?

Purchasing for price appreciation and future profit Signup and view all the answers

How does regular auditing benefit compliance and risk management?

It helps maintain compliance and identify issues Signup and view all the answers

What is a potential disadvantage of the market purchasing method?

Obsolescence risks from market misjudgments Signup and view all the answers

What does reporting and analysis in procurement primarily involve?

Analyzing data to drive continuous improvement Signup and view all the answers

What is the primary objective of negotiation?

To create a win-win situation for all parties involved. Signup and view all the answers

Which of the following terms falls under the scope of negotiation?

Delivery schedules Signup and view all the answers

How does bargaining typically differ from negotiation?

Bargaining focuses on offers and counteroffers for a specific term. Signup and view all the answers

Which strategy is commonly used in the bargaining process?

Starting from extreme positions and gradually moving towards a middle ground. Signup and view all the answers

What is a key characteristic of negotiation?

Multiple discussions addressing long-term interests. Signup and view all the answers

In what scenario could a buyer use bargaining effectively?

By increasing order volume to lower the price. Signup and view all the answers

Which aspect of negotiation is less emphasized in bargaining?

Focus on long-term relationships. Signup and view all the answers

What defines the approach commonly taken in bargaining?

Quick, tactical exchanges to reach a specific outcome. Signup and view all the answers

How do strong vendor relations specifically contribute to timely deliveries?

Vendors are incentivized to prioritize their orders for reliable clients. Signup and view all the answers

What is one potential benefit of negotiating favorable payment terms with vendors?

Improved cash flow management for the company. Signup and view all the answers

Which aspect of vendor relations helps ensure a consistent supply of materials during high demand?

Establishing trust and strong relationships with vendors. Signup and view all the answers

What is a potential disadvantage of weak vendor relations?

Higher chances of receiving wrong or substandard products. Signup and view all the answers

Why is it important to maintain high product quality in vendor relations?

It ensures the company's long-term success and reputation. Signup and view all the answers

How can strong vendor relationships affect a company's cost structure?

They may reduce costs by enabling negotiated discounts. Signup and view all the answers

What role does adaptability play in vendor relations during emergencies?

It allows for flexibility and quick alternatives when needed. Signup and view all the answers

What can companies do to avoid costly errors with their vendors?

Enhance communication and build familiarity with vendor requirements. Signup and view all the answers

What is a critical aspect of effective risk management during negotiations?

Identifying and mitigating risks Signup and view all the answers

Why is documentation and formalization important in negotiations?

It ensures clarity and legal protection Signup and view all the answers

Which of the following is NOT a key area for preparation before negotiations?

Influencing political decisions Signup and view all the answers

Which type of negotiation emphasizes creating value for both parties?

Integrative negotiation Signup and view all the answers

In distributive negotiation, what is the typical outcome for one party's gain?

It leads to zero-sum outcomes Signup and view all the answers

How can having alternative options impact a buyer's negotiating position?

It demonstrates independence from suppliers Signup and view all the answers

What does integrative negotiation often consider aside from price?

Delivery schedules and product customization Signup and view all the answers

What is often a central focus in distributive negotiations?

Maximizing individual benefit Signup and view all the answers

What must the production manager first decide when collecting data for forecasting?

The data sources to use Signup and view all the answers

Which forecasting method is more appropriate for new products?

Delphi technique Signup and view all the answers

What is the purpose of testing the forecasting model?

To verify the forecast accuracy Signup and view all the answers

What is essential before presenting forecasts?

Compiling detailed information on the forecast process Signup and view all the answers

What is the final step in the forecasting process?

Comparing actual events with forecasts Signup and view all the answers

Which method is more appropriate for existing products with stable demand?

Simple Moving Average Technique Signup and view all the answers

What type of data should be used for accurate forecasting?

Comprehensive and reliable data Signup and view all the answers

Which of the following is NOT a part of the forecasting process?

Product launch Signup and view all the answers

Study Notes

Purchasing

Purchasing is the process of buying
It's not just the purchasing department's responsibility, all departments are involved
Getting the right materials, in the right quantities, with the right delivery (time and place), from the right source, and at the right price are all purchasing functions
Choosing the right material requires input from marketing, engineering, manufacturing, and purchasing departments
The quantity and delivery of finished goods are established by market place needs
Manufacturing planning and control (MPC) decides when to order raw materials to meet market needs

Purchasing Objectives

Purchasing is responsible for materials flow, supplier follow-up, and expediting delivery.
Missed deliveries disrupt manufacturing and sales.
Purchasing objectives are divided into four categories:
- Obtaining goods/services in required quantity and quality.
- Obtaining goods/services at the lowest cost.
- Ensuring best possible service and prompt delivery by the supplier.
- Developing and maintaining good supplier relations, and developing potential suppliers.
To meet these objectives, some basic functions must be performed:
- Determining purchasing specifications (quality, quantity, delivery).
- Selecting the right supplier.
- Negotiating terms and conditions (price).
- Issuing and administering purchase orders.

Purchasing Cycle

The cycle consists of receiving and analyzing purchase requisitions
Selecting suppliers involves identifying potential suppliers and issuing requests for quotations. Determining the right price and issuing purchase orders are crucial steps.
Following up to ensure delivery dates are met is also important.
Receiving and accepting goods, and approving supplier invoices for payment complete the cycle.
Purchase requisitions detail needed materials (identity, specifications, quantity, date, additional notes).
Modern electronic requisition systems streamline the process, improving efficiency.
For routine items, a list of approved suppliers is kept. Otherwise, a search may be conducted online, in catalogs, trade journals, or directories.
For major items, requests for quotations are sent to several reliable suppliers.
Suppliers respond with their quotations, which are evaluated for price, compliance to specifications, terms, and conditions of sale.
A purchase order (PO) is a legal offer to purchase goods.
Following up and delivery ensures timely delivery; if delays occur, alternative solutions may be sought.
Receiving and accepting goods involves inspection for correctness, quantity, and damage.
Supplier invoices must agree with the purchase order and receiving report. Accounts payable processes payment after approval.

Procurement Activities

Demand Planning and Forecasting: Predicting future material needs based on historical data, market trends, and business forecasts.
Supplier Identification and Evaluation: Finding and assessing potential suppliers based on financial stability, reputation, and capabilities.
Request for Quotation (RFQ)/Request for Proposal (RFP): Soliciting bids from suppliers for specific materials or services.
Purchase Order Management: Creating purchase orders, tracking order status, and handling changes.
Contract Negotiation and Management: Establishing and managing agreements with suppliers, including price, delivery, and payment terms.

Inventory Management

Inventory Management: Managing optimal inventory levels, balancing availability with costs. Systems track order, storage, and ensure material quality.
Supplier Relationship Management: Building strong relations with suppliers for smooth communication, addressing issues, recognizing performance.
Quality Assurance: Ensuring procured materials meet quality standards. Quality specifications, inspections, and timely resolution of issues are crucial.
Logistics and Distribution: Managing transportation, delivery, and tracking/inspection of materials.
Cost Management: Controlling and reducing procurement costs, setting/managing budgets, and managing relations.
Compliance and Risk Management: Ensuring procurement adheres to regulations, risk assessments. Finding solutions for disruptions, financial issues, or legislative matters.

Methods of Purchasing

Purchasing by Requirement: Purchasing only when needed in the required quantity; often for emergency goods.
Market Purchasing: Acquiring goods when favorable market conditions exist, not necessarily for immediate needs.
Speculative Purchasing: Buying goods now at lower prices to sell later at a higher price.
Purchasing for Specific Future Periods: Purchasing regularly required items over a specific period.
Contract Purchasing: Formal contract for materials delivery, with terms and conditions fixed.
Scheduled Purchasing: Providing the supplier with a schedule for material needs to maintain timing.
Group Purchasing of Small Items: Buying multiple small items from a single vendor to lower costs.

Parameters of Purchasing

Right Source: Reliable source assures quality delivery and consistent quality.
Right Price: Lowest possible price but not necessarily the cheapest if compromise isn't made on quality
Right Quality: Meets specified standards.
Right Quantity: Meets demand but not excess.
Right Time: Delivers materials to avoid delays, taking account emergencies.
Right Place: Convenient location to minimize handling costs.
Right Material: Correct material to avoid production problems.
Right Transportation: Minimizes shipping costs.
Right Attitude: Open to new solutions and being organized.

Introduction to Negotiation and Bargaining

Negotiation involves parties discussing and settling on mutually beneficial terms.
This includes scope such as delivery times, payment terms, quantity of goods, quality standards, and warranties.
Bargaining is the part of the negotiation process where parties exchange offers and counteroffers to reach agreement.

Characteristics of Negotiation in Purchasing

Two Way Communication: Active communication between buyer and supplier for a mutually beneficial agreement.
Goal Oriented Description: Clear and specific goals (reducing costs, timely delivery, quality standards) guide the process.
Preparation and Research: Market research, understanding supplier positions, and identifying alternative options ensure informed negotiations.
Flexibility: Adapting to changes and making concessions to reach an agreement.
Long-term relationships: Maintaining vendor relations.

Types of Negotiation

Distributive Negotiation (Win-Lose): One party's gain is the other party's loss, typically focused on prices.
Integrative Negotiation (Win-Win): Aims for mutually beneficial outcomes through compromise, consideration of non-price matters.

Challenges in Forecasting

Uncertainty: Market volatility makes accurate predictions difficult, especially in rapidly changing sectors. External events and disruptions can impact supply chains.
Data Quality: Inaccurate or incomplete data result in poor forecast accuracy.
Lead Time Variability: Supplier lead times might fluctuate, which complicates forecasting. Production delays might reduce accuracy.
Seasonality: Many businesses experience variations in demand tied to seasonal events. Forecasts must reflect these variations.

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Description

This quiz covers the essential aspects of purchasing, focusing on the involvement of various departments in the process. It discusses objectives related to materials flow, supplier relationships, and the importance of timely deliveries in manufacturing. Test your understanding of the purchasing functions and their impact on overall operations.