SCMN 3730 Exam 2 Study Guide PDF

SCMN 3730 Exam 2 Study Guide Exams draw questions randomly from a bank of questions. The number before each topic indicates the number of questions that will be drawn for that topic. Under each topic are the sub-topics covered in the exam. Sub-topics that are bolded have a larger number of question...

SCMN 3730 Exam 2 Study Guide Exams draw questions randomly from a bank of questions. The number before each topic indicates the number of questions that will be drawn for that topic. Under each topic are the sub-topics covered in the exam. Sub-topics that are bolded have a larger number of questions related to them in the question bank. Sub-topics that are bolded and italicized have an especially large number of questions related to them in the question bank. All concepts covered in an exam question are covered in writing on a lecture slide provided by the instructor. 9 Contract Management - The principal agent problem - When an organization outsources some activity to a supplier, what are some of the risks? - Principal: Person whom the action affects (e.g. buyer or employer) - Agent: Person who acts (e.g. sellers or employees) - Agency relationship: one person’s welfare depends on what another person does - Fixed and cost-based contracts - Fixed Price Contracts: - Firm-fixed price: - Price stated does not change - Most basic and easiest contractual mechanism - Supplier bears financial risk in a rising market - Buyer assumes financial risk in a declining market - Fixed-Price with escalation: - Used for longer-term contracts where costs are likely to increase - Escalation clauses allow either price increase or decrease - Should be tied to an independent, published third-party index - Fixed-price with redetermination: - Used when parties cannot accurately predict costs and quantities - Base price is determined using “best guess” estimates - At a predetermined future time, buyer and supplier review actual experience and adjust price - Fixed-price with incentives: - Terms and conditions allow cost-savings sharing with supplier - Similar to fixed-price with redetermination contract - Typically utilized under conditions of high unit cost and relatively long lead times - Cost-Based Contracts: - Cost Plus incentive fee: - Similar to fixed-price plus incentive except incentive is based on changes in allowable costs - May include cost-savings sharing at a predetermined rate - Appropriate when parties are confident of initial target cost - Cost-Sharing:  - Costs are shared between parties on a predetermined basis - Key is identification of operating guidelines, goals, and objectives - Need to spell out expectations clearly - Time and Materials: - Generally used in plant and equipment maintenance agreements - Costs cannot be determined prior to the actual repair - Based on an agreed upon labor rate - Requires a “not to exceed” amount - Cost Plus fixed-fee: - Supplier receives reimbursement for all allowable costs up to a predetermined level plus a fixed fee - Fixed fee represents a percentage of the targeted cost - Supplier is guaranteed a minimal level of profit - Little motivation to control costs - Initiation: Contract Length: - Spot Contracts: - those purchases that are made on a nonrecurring or limited basis - Short-Term Contracts: - contract purchases that are routinely made over a relatively limited time horizon - Long-term Contracts: - made on a continuing basis for a specified or indefinite period (often ≥ 1 year) - Dispute resolution - Legal Action: File a lawsuit in a federal/state/local court - Non-Legal Action: - Arbitration: Use of an impartial third party to resolve a contractual dispute - Mediation: Intervention by a third party to promote settlement, reconciliation, or compromise between the parties - Mini-Trial: An exchange of information between managers in each organization, followed by negotiation - Third Party Judgement: A neutral party conducts a “trial” between the parties and is responsible for the final judgment - Dispute Prevention: A progressive schedule of negotiation, mediation, arbitration, and legal proceedings agreed to in the contract - Uniform commercial code - A law with the goal of harmonizing the laws of sales and other commercial transactions across the United States - Provides standardized guidance for clarifying and interpreting contracts - Provides a general framework from which contracts can then be customized - Reduce uncertainty around terms 3 Ethics  - Legal Authority as an Asset: - Express Authority: - directly authorized as part of job duties - Implied Authority: - other authority that is necessary, usual, and proper to complete express authority - Apparent Authority: - when the words or actions of the employer lead a reasonable person to believe that authority has been granted - Maverick Buying: - When an individual who lacks proper authority purchases products at the company’s expense 9 Commodity Management - Kraljic’s purchasing matrix/purchasing requirements and focus. - Types of items - Strategic: - Main task: Accurate demand forecasting. Detailed market research. Development of long-term supply relationships. Make-or-buy decisions. Contract staggering. RISK analysis. Contingency planning. Logistics, inventory, and vendor control - Required Info: Highly detailed market data. Long-term supply and demand trend information. Good competitive intelligence. Industry cost curves - Decision Level: Top level (VP of Purchasing) - Bottleneck: - Main Task: Volume insurance (at cost premium if necessary). Control of vendors. Security of inventories. Backup plans - Required Information: Medium-term supply/ demand forecasts. Very good market data. Inventory costs. Maintenance plans - Decision Level: Higher level (department heads) - Leverage: - Main task: Exploitation of full purchasing power. Vendor selection. Product substation. Targeted pricing strategies/negotiations. Contract/spot purchasing mix. Order volume optimization - Required Information: Good market data. Short- to medium-term demand planning. Accurate vendor data. Price/transport rate forecasts - Decision Level: Medium level (senior buyer) - Non-Critical: - Main task: Product standardization. Order volume monitoring/ optimization. Efficient processing. Inventory optimization  - Required Information: Good market overview. Short-term demand forecast. Economic order quantity inventory levels - Decision level: Lower level (buyers) - Types of management - Focus: - Purchasing: Non-critical items - Materials: leverage items - Sourcing: bottleneck items - Supply: strategic items - KPI: - Purchasing: efficiency - Materials: cost/price and material flow - Sourcing: cost and reliability - Supply: long-term availability - Typical Suppliers: - Purchasing: established local suppliers - Materials: multiple suppliers, mostly local - Sourcing: global, generally suppliers with newer technologies - Supply: established global suppliers - Time Horizon: - Purchasing: short, less than one year - Materials: varies, 12-24 months - Sourcing: varies, depends on availability - Supply: long-term - Items Purchased: - Purchasing: commodities - Materials: mix of commodities and specialized materials - Sourcing: mostly specialized materials - Supply: high-value materials - Supply: - Purchasing: abundant - Materials:abundant - Sourcing:production-based scarcity - Supply:scarce - Decision Authority: - Purchasing: decentralized - Materials: mainly decentralized - Sourcing: centrally coordinated - Supply: centralized - Economies of - Scale: costs per unit decline as the volume produced increased - Capacity: higher capacity utilization improves the ability of a firm to spread costs - Scope: cost for one firm to complete activities A & B is less than it cost for two firms to separately complete each activity  - Density: benefits (e.g., lower costs, more frequent service) that result from greater demand for transportation between two locations - Potential missteps of strategic sourcing initiatives. 9 Supply Chain Relationships - Bases of social power - Mediated: - The buyer takes a specific action to elicit behavior - Non-Mediated: - Occur naturally as part of the business relationship and do not require intent or action - Types - Reward mediated power: - Reward: Have the ability to compensate for compliance - Coercive mediated power: - Coercive: Have the ability to punish for non-compliance - Legitimate: Have the ability to make demands - Non-Mediated Powers: - Expert: Based on superior skill and knowledge - Referent: Perceived attractiveness, worthiness, right to respect - Consequences - Reward Mediated Power: - Has beneficial, but weak, impact on relationship quality - Coercive Mediated Powers: - Has a substantial negative impact on relationship quality - Non-Mediated Powers: - Has a strong, beneficial impact on the relationship - Social capital  - defined as a valuable asset that stems from access to resources made available through social relationships. - Cognitive Capital: - Shared understanding between the parties - Relational Capital: - Trust and reciprocity built up over a prolonged interactions. - Structural Capital: - The shared patterns of the relationship - Arcs of integration - Types and performance of them - Outward-facing supply chain strategy: - is associated with the largest rates of significant performance improvements - Inward-facing strategy: - Manufacturers may be jeopardising performance - Supplier and customer-facing strategies - gained little more than periphery and inward-facing strategies - Bullwhip - Order variability is amplified up the supply chain; upstream echelons face higher variability