Purchasing and Supply Management
Chapter 1
1. There are different types of purchasing categories. That is centralized purchasing and decentralized purchasing. Most people support decentralized purchasing because make purchasing activities effective. Others do not support centralized purchasing because it needs high involvement of engineers. The engineers are supposed to be involved in design. It also needs high coordination of purchased parts and production schedules. It also needs one to buy from the local community. Decentralized purchasing involves many centers that carry out purchasing functions. Decentralized purchasing is not effective like centralized purchasing as it is expensive and needs a lot of time (Johnson, Leenders &Flynn, 2010).
2. Purchasing function can contribute a lot to profitability in a company. Most organizations rely on purchasing function to improve their profit. They have integrated purchasing function with other activities to improve product quality, customer satisfaction and profit. Purchasing plays important roles in making companies achieve competitive advantage. Inputs that are purchased make 60-80% of the total revenue in the company. They also offer the company a competitive advantage and this makes it easy to compete with other firms (Johnson, Leenders &Flynn, 2010).
3. Material management refers to the management of materials in the organization. There are different kinds of materials that need to be managed so as to help realize purchasing objectives and goals (Johnson, Leenders &Flynn, 2010).
4. Supply management involves the flow of materials via manufacturing firms. Supply management is important in any organization as it helps in the flow of materials in the organization. This helps in attaining profits. The supply management affects other areas in the organization like the inventory control. The areas should work together to ensure the organization achieves its goals (Johnson, Leenders &Flynn, 2010).
5. Purchasing interacts with other functional area in an organization. For instance, purchasing interacts with the inventory control in the organization. The purchasing function relies on inventory management. It also affects the traffic and production control in the organization. Poor management of supply leads to poor production. It also affects purchasing and stores. The purchasing function is directly related to purchasing in the organization. Organizations have to determine the inventory items needed so as to be able to purchase items (Johnson, Leenders &Flynn, 2010).
6. Centralized purchasing and decentralized purchasing are associated with various issues. For instance, most people do not support centralized purchasing because of the high inventory costs and operating cost. On the other hand, other people do not support centralized purchasing because of high level of monitoring and involvement of engineers. This has made it hard to integrate centralized purchasing in the organization. Most organizations have adapted centralized purchasing to overcome the disadvantages of decentralized purchasing. First, centralized purchasing helps eliminate the duplication of buying efforts and this reduces the cost of buying. It also helps relieve the managers the responsibility of purchasing their own requirements.
This makes it easy for the managers to put effort in achieving organization objective. It also helps firms get the advantage of quantity discounts. It also helps eliminate intermediaries who might increase the cost of the products. Moreover, centralized purchasing helps reduce inventory carrying costs. This is because the inventory carrying costs are attained at a centralized center instead of different places. This in turn reduces investment in inventories and storing costs. However, centralized purchasing has various disadvantages. First, centralized purchasing requires high involvement of engineers. The engineers are required to carry out various functions like checking the design. It also requires high coordination of different activities. It also forces one to buy from the community (Johnson, Leenders &Flynn, 2010).
7. Purchasing and supply chain management is aimed at improving the management of materials and supply in automobile industry. The automobile industry relies on material management and this impacts their profits. It is aimed at improving the profit in the industry. In hospitals, the supply management and purchasing is aimed at ensuring hospitals have adequate inventory and manage the inventory items available. In pizza shops purchasing and supply management focuses on ensuring availability of material and other products needed (Johnson, Leenders &Flynn, 2010).
8. There are many types of careers in purchasing. For instance, there are careers in manufacturing companies, wholesaling sector. In addition, there are careers in retail trade and in service organizations like hospitals and government agencies. In 2002, manufacturing sector and wholesaling sector accounted for 42% of all careers in purchasing professional. Retail trade and service organizations accounted for 15% and 43% respectively. People can work as purchasing agents, purchasing managers, buyers in different sectors that offer supply services (Johnson, Leenders &Flynn, 2010).
9. professional purchasing associations include the certified purchasing manager designation that is offered by the institute of supply management. Another professional purchasing association is certified purchasing professional and certified professional purchasing manager that after offered by the American purchasing society(Johnson, Leenders &Flynn, 2010).
Chapter 2
1. Purchasing professionals are supposed to be concerned with strategic plan so as to help the company achieve competitive advantage. Managers are supposed to be aware of the strategies and planning so as to devise the right strategies to help the firm achieve competitive advantage.
2.
Purchasing fits into the strategic plan framework used to link purchasing and competitive advantage. The purchasing actions that are made by the managers should be inline with the firms’ competitive strategy so as to help link purchasing and competitive strategy.
3. There are different components of purchasing strategy. A purchasing strategy consists of competitive priorities in a firm, cost differentiation and competitive strategy. Other components are buyer reward criteria, buying criteria, purchasing actions and performance. Lastly, the purchasing strategy involves the resource capabilities and the external environment.
4. There is different decision areas linked with purchasing strategy. That is supply management decision area and buying area. In supply management area, one has to determine the number, size and the managerial expertise needed. One also has to determine the amount of purchase. In buying, one has to determine the criteria, purchasing scale and ordering policy. Other areas include supplier development and the extend of manufacturing activity. In supplier development one should determine new items and substitute items development. In scope of manufacturing one should determine the degree of integration (Johnson, Leenders &Flynn, 2010).
5. The purchasing strategy has an impact of purchasing strategy on manufacturing inventory. For instance; the purchasing strategy helps in reducing the cost of manufacturing inventory. The low cost strategy has low impact on the raw materials and parts, spare parts and work progress. It has a medium impact on finished goods. The narrow product line strategy has a low impact on raw material and work in progress. It has a medium impact on finished goods and spare parts. Other strategies like strategies used to produce goods for seasonal demand have either high or low impact on finished goods and spare parts. The strategy has a low impact on raw materials and parts and work in progress. Thus, the impact of the purchasing strategy can either be high or low (Johnson, Leenders &Flynn, 2010).
6. Partnering refers to the act of coming together to achieve certain goals. Different people in a supply chain come together to help- achieve the supply chain objectives. The increasing in competition in the market, deregulations and other factors has forced suppliers to come together. The supplier partnership is used as a tool to achieve competitive advantage. There are different factors used to group suppler partnerships. The first factor is the extend of the risk or reward. Some of the supplier partnerships can be grouped in terms of risks or reward. The second factor used to group supplier partnership is the relationships between different firms. Other factor is information and planning. The partnerships can be grouped according to the information governing a transaction. That is if the information is limited or not. The partnerships can also be grouped according to plan. That is planning for short term transactions. The last factor is asset ownership. In asset ownership the partnership can either be complete or separate (Johnson, Leenders &Flynn, 2010).
7. The buying model mentioned has various elements. That is the buying criteria; the purchasing actions. The model specifies the criteria that will be used to purchase products. It also states the buying reward criteria and the purchasing actions that will be undertaken when purchasing.
8. There are various elements of strategic purchasing plan. That is the purchasing strategy and the competitive strategy. The strategic plan should sow the purchasing strategy to be used and also the competitive strategy in the organization (Johnson, Leenders &Flynn, 2010).
9. Most firms find it hard to remain competitive in the business environment. Supply chain management has made the operating environment complex and made it hard for business to survive. Competitive and industrial pegging is a tool that is used to achieve constant improvement in the industrial supply chain. The owners of a supply chain cannot function without the help of other supply chain members. This forces them to form relationships. The kind of relationship formed by the members determines the survival of the firm in the competitive environment (Johnson, Leenders &Flynn, 2010)
Chapter 3
1. There are various business entity tasks that are linked with purchasing function. For instance, the purchasing manager is supposed to support the company when acquiring materials, supplies and services. Purchasing manager is supposed to represent the development and negotiation of contracts with third parties. There are legal issues that are linked with the purchasing function. First, the selection of the purchasing manager is based on legal terms. There are various factors that are connected with the selection of purchasing manager. First, the purchasing manager should be given the power to make contracts that are linked to purchasing. In addition, the purchasing manager should accept the contracting powers given. The employer should also accept the commitments that are made to the purchasing manager. The transactions made during the purchasing function are legally bound by the agency method. In purchasing function, there is an agency relationship that needs three parties. That is the principal, the agent representing the principal and the agent carrying out business in place of the principal(Johnson, Leenders &Flynn, 2010).
2.
Purchasing authority refers to the authority to make any purchase. It is usually given to the purchasing manager. There are different types of purchasing authority. That is express authority, implied authority and emergency authority. Express authority occurs automatically after the purchasing manager is selected. The authority is always expressed in writing like in real estate contracts.
The implied authority is determined by the law. This occurs when the principals gives authority to the agent. An example of an implied authority is when the purchasing agent is given the permission to make a contract. He should consider, the quality, payment terms and date etc. Emergency authority is used when the purchasing agent does not have the two authorities listed above. The emergency authority is not expressed in writing like the express authority. An example of an emergency authority is when the purchasing agent is allowed to protect the property rights if the manager is unable to negotiate (Johnson, Leenders &Flynn, 2010).
3.
Implied authority is related to express authority in many ways. In implied authority a purchasing agent is given permission by the principal to carry out various duties like making a contract. The duties should be carried out according to the laws given. The principal manager is supposed to give the purchasing agent an express authority to carry the duty. He should also give him express authority to sign promissory notes. For instance, if the principal is supposed to make a contract, he can give the purchasing agent permission to make the contract on his behalf. Hence, the purchasing agent acts in accordance to the express authority granted to him. Thus, the two are related as they depend on each other (Johnson, Leenders &Flynn, 2010).
4.
There are various liability issues that are linked with the actions of the purchasing agent. In most cases, the purchasing agent has no personal liability if the name of the principal and company are indicated in the document. In addition, the purchasing agent has no personal liability if the parties involved in the transaction are aware that the agent is representing the principal or company. Moreover, he has no personal liability if the relationship between the agent and other parties is shown in the document and also if he is acting within his powers. However, the agent has personal liability if a note is signed without having the official title. The agent is liable even if he was signing the note on behalf of the company. In addition; the agent is also liable if the company signs a check without listing an official title (Johnson, Leenders &Flynn, 2010).
5. There are various requirements that make a contract legal. First, the parties involved in a contract should be aware of the purpose of the contract. People who are impaired are not allowed to enter into agreement as they are not familiar with what they are doing. For example, people who are mentally sick, alcoholic and drug addicts do not participate in a contract. Also, a corporation is not allowed to enter into an agreement if it has no corporate agent. Additionally, the content of the contract should be legal and valid so as to make it valid. The product and services contracted should be inline with the public policy. Also, a contract should have a mutual consideration.
In this case, there should be something valuable that can pass from one party to another. For instance, if a car owner should give a mechanic $1000 to repair the car. The mutual consideration makes the contract enforceable. When purchasing products or services, the purchasing manager should look at the following considerations. That is price, quality, delivery etc. Lastly, the parties should be able to reach at an agreement by offer and acceptance. The parties should agree on the offer and acceptance. In case of purchasing, the seller should make the offer. After making the offer the buyer should accept, negotiate or reject the offer made. A contract is consisted enforceable after the two parties accept the offer.
An offer is important in as contract. The offer and acceptance make a contract valid. An offer is proposal that is made by a person entering a contract. It is a sign of legal commitment to other person. An offer binds the two parties involved in a contract together. For example, if a person makes an offer, he or she should be prepared to act if the offer is accepted. Thus, an offer and a contract they are related (Johnson, Leenders &Flynn, 2010).
6.
An invitation to bid and an offer are different and similar in some way. An offer is a proposal made by a party in a contract. The request for quotation allows business to test the market without having it make any legal commitment to purchase. An invitation to bid is a request for quotation that has no the intent element. An offer and an invitation for bid differ because an offer has intent and the invitation for bid does not have intent as stated above. An offer is made up of three elements. First, an offer has intent to make the offer. The intent is supposed to be stated clearly. The supplier should hand in a written quotation form. The firm should indicate what the supplier is offering to sale. For instance, if the supplier is offering a buy firm he or she should indicate the offer to buy. Another component is the communication for the intent. The offered should be informed about the offer. The purchasing agent should communicate the offer via a purchasing order. The seller can use a proposal or quotation to communicate the offer. The offer and invitation for a bid are used together when carrying out a purchasing contract (Johnson, Leenders &Flynn, 2010).
7. There are different outcomes of an offer. First, the offer can elapse. In this case, the terms for an offer are meant to end after some time. For instance, if a purchasing agent is allowed to receive a product within seven days and he does not receive the product within the seven days. Then the offer is no longer valid. The seller or supplier counts seven days from the date indicated in the request for a quotation. In most cases, an offer does not have a time limit. In this case, the law determines when the offer will end. For instance, it can state a reasonable time that the offer will end. The time is based on the kind of product and service. It also based on the change in market price, history of transaction between the parties and industry rules.
In other cases, the offer can be rejected. Rejection of an offer affects its existence and validity. Offers that are rejected no longer exist. The supplier should be informed of an offer that is rejected. The supplier can be informed of the rejection verbally or through a written document.
Moreover, an offer can be revoked. Most laws allow the offer to be revoked anytime before it is accepted. Most companies have a free will to make an offer and this gives then an opportunity to revoke the offer before it is accepted. Revoking an offer is against the law and companies should avoid it. For instance, it affects the firm buying. Lastly, an offer can be accepted. After the offer is accepted then parties enter into a contract (Johnson, Leenders &Flynn, 2010).
8.
Revoking an offer has a negative impact on the firm buying and the purchasing officer should protect the firm buying. There are different methods that the purchasing officer can use to protect the company buying from a revoked offer .First; the officer can get a company offer so as to protect the company. This will help prevent the offer from being revoked. The form offer should be stated when requesting quotations. The firms offer enables the supplier to consider the risk associated with the offer before making an quotation. This makes the offer enforceable as the quotations that result from the request for a quotation are enforceable. In addition, the officer can get a bid bond or get an option contract to protect the firm. An optional contract is used if the supplier is not willing to give the firm buying an offer. The seller should make an agreement to give the buyer a certain time to make the purchase. A bid bond, allows the firm to include a third party into the transaction. In this case, the supplier is supposed to get a bonding company so as to guarantee the supplier will enter into a contractor if he or she is given the contract. (Johnson, Leenders &Flynn, 2010).
9
The information age has helped transform the purchasing functions. Most business has integrated information technology into their activities and this has made the activities effective. Most people have been able to buy and sell using different technologies like eBay.com. The information age has also transformed contracting. Electronic contracting has become common in many firms. For instance, it has become common in the automobile industry. Most organizations have integrated supply chain management with information technology.
10.
An electronic signature is a signature that is in an electronic format. It is usually linked with a data message and it is used by a party on a contract to show the person and show the person has approved the content of the data message (Johnson, Leenders &Flynn, 2010)
Chapter 4
1.
Capacity planning and material requirement planning are related. Capacity planning is supposed to take into consideration the buyer and seller when planning to acquire raw materials, component parts and goods that are finished. The supplier is supposed to convert material acquisition into capacity requirement. Hence, material requirement planning and capacity planning are related (Johnson, Leenders &Flynn, 2010).
2.
Capacity planning is also related to inventory management. Inventory management is aimed at managing products in the organization. Inventory refers to capacity stored. If the capacity stored is not enough to meet the demand for a product having seasonable sale, then finished goods inventory should be accumulated during this period. Capacity planning helps in the management of inventory as managers have to get more goods to meet the demand of the product. In addition, they have to get more products so as to be able to accumulate more products for the low season. Thus, capacity planning and inventory management are related as they rely on each other.
3. The purchasing function is made up of various things. For instance, the purchasing function is made up of various tasks in the business like materials, supplies and services. Quality is related to purchasing function. This is because the buyer and the agent have to determine the quality of a product or service before buying it. Failure to determine the quality can interfere with the product bought. In this case, the buyer can buy products of low quality. Thus, one has to identify the quality of a product before purchasing the product (Johnson, Leenders &Flynn, 2010).
4.
There are different views used to explain quality. Some people associate quality with engineering. That is the process technology and product design. Others view quality as a statistical measure. They argue that quality uses sampling technique to attain process control. It is also used to ensure low quality materials are not being transported. Other people think that quality depends on motivation. Motivation varies from one firm to another. Some firms might have good process technology and find it dificuty to motivate their employees. On the other hand, firms that have motivated and experienced employees do little to improve the quality of materials , process technology and supervision as they have not been given priority(Johnson, Leenders &Flynn, 2010).
Moreover, quality is used to refer to customer satisfaction. The quality of a product or service is determined by the reaction of the customer. Some customers may see a product to be of low quality while others might see a product to be of high quality. Material managers are supposed to consider the quality in terms of customer needs. For instance, the quality of a material should be determined by the expectation of a customer. The quality of a material depends on the users of the material. The product produced in a company should meet the expectations of the customers and be in good condition. People purchasing materials determine the suppliers on the basis of quality and reliability. They also determine suppliers using price.
Also, quality is seen as a kind of decision. Material managers are supposed to evaluate the quality of a material. They should determine if the quality is high, low or in between. The views above are used to explain what quality is (Johnson, Leenders &Flynn, 2010).
5. Quality is a subset of customer satisfaction. This is explained by the different views above. The quality of a product, service and material is determined by the level of customer satisfaction .Customers will be satisfied by a product, service or material if it is of high quality. In addition, customers will not be satisfied by a product if the quality of the product, service or material is low. The customer is the main determinant of material quality product quality and service quality. Thus, the quality of a material and goods is evaluated according to customer satisfaction. It should be able to meet the needs of the customers so as to satisfy the customer. Value refers to the ratio between quality and price. The quality of a product, material or service is determined by the value (Johnson, Leenders &Flynn, 2010).
6.
A good supplier should have the following characteristic. First, a good supplier should be able to offer quality materials, products and goods. Different suppliers offer products having different quality. For instance, some of the suppliers are not able to offer quality products and this makes it hard to meet the customer expectation. A good supplier should ensure the quality of the products, services and goods meets customer satisfaction. In addition, the suppler should be able to offer reliable products. The products offered should be in good condition so as to ensure customer satisfaction. The supplier should also be able to offer goods and materials at the right price. Most firms identify suppliers according to the quality, reliability and price. The supplier should meet all the features above so as to be termed good (Johnson, Leenders &Flynn, 2010).
7.
Specifying materials refers to the act of stating the specification of the materials. Most customers and suppliers differ on the definition of quality and material speciation. The difference in definition of quality is as a result of material specification. Suppliers integrate specification differently. The interpretation of specification by suppliers is not inline with the interpretation of the customers. Materials are specified according to the kind of material the customer has ordered. For instance, raw materials are semi processed materials that need to be processed further like crude oil (Johnson, Leenders &Flynn, 2010).
8.
There is a great difference between purchased components and maintenance, repair and operating supplies. Purchased suppliers refer to products that are semi finished. The products need to be processed further. It also refers to materials that become components of finished products. The purchased supplies are specified in “a made to order environment” using a graphical description like engineering drawings. Maintenance refers to items in equipment that need to be replaced regularly. The items wear often and need to be replaced. If the items are maintained well then it will be dificuty to repair the materials regularly. Operating supplies are part and parcel of the final item and are important in the production of the final product (Johnson, Leenders &Flynn, 2010).
9. There are different skills that are needed in order to become a successful material manager. First, the manager should have good skills in material management. For example, he should be able to carry out material planning and control well. He should also be able to determine the quality of a product well. Material quality is important and the manager should ensure the specification is correct or inline with the customer interest. He should be able to enhance customer satisfaction. In addition, the manager should be able to control the inventory (Johnson, Leenders &Flynn, 2010).
.Chapter 5
1.
Inventory management is related to purchasing function. The purchasing decisions made depend on the amount of inventory available. Inventory management helps make the right purchasing decisions. For instance, inventory management helps determine which items to purchase and which items not to purchase. Managers are able to determine the products through inventory management. The purchasing manager is supposed to make decisions regarding what is supposed to be stocked. The manager should be able to meet the needs of the manufacture by stocking enough items. Thus, inventory management helps him make such decisions (Johnson, Leenders &Flynn, 2010).
2.
There is a great difference between dependent demand and independent demand. Organizations have to identify different attributes so as to be able to manage different types of inventory. For example, they have to determine the nature of demand and cost. The nature of demand is either independent or dependent. Independent demand is not linked to the demand for other products. The independent demand is supposed to be determined independently as it is not connected with demand of other goods. On the other hand, dependent demand is gotten from the demand for items stored in the inventory. For instance, the raw materials, components parts and other elements depend on the demand of the final product in a manufacturing company. The dependent demand is not determined independently, but one should look at the demand of other products to determine the depedent demand (Johnson, Leenders &Flynn, 2010).
3.
There are different types of inventory cost. An inventory system is aimed at reducing the total operating costs. The inventory costs include ordering costs, stock out costs and holding costs. The costs can not be avoided and one has to look for ways to minimize them.
4. The EOQ model is related to purchasing. The EOQ model is aimed at reducing the cost of components involved. It helps reduce the ordering cost and holding cost. The EOQ determines the time the company is able to purchase items and which items can be purchased. For example, a company is allowed to buy items if the inventory in the company reaches the reorder level. The total of the three costs above is equal to the sum of inventory costs in a year for the items purchased. The EOQ model allows companies to order expensive items regularly and in small quantities. On the other hand, it allows companies to order items that not expensive less often and in large quantities. Hence, the EOQ model is important in purchasing (Johnson, Leenders &Flynn, 2010).
5.
The inventory decisions are decisions about the items that needed to be reordered. The inventory decisions are related to forecasting. For instance, one has to determine the items to order and their demand using the inventory. When forecasting, one should consider the various inventory decisions like what to stock, the cost and the service to offer. This will make it easy for the manager to forecast correctly (Johnson, Leenders &Flynn, 2010).
6.
Companies receive discounts from suppliers when purchasing items. The amount of discount depends on the number of items bough. Companies that purchase small amounts get small discounts. On the other hand, firms that purchase items in large quantities get huge discounts. The price of material per unit is fixed. This is according to the EOQ model. The quantity discounts invalidates the total cost curve and results to a discontinuous total cost curve. The minimum total cost pint is usually at the point of discontinuity if the discount is applicable to all items. There are various steps that are used to calculate the quantity discount.
First, one is supposed to determine the economic order quantity using the lowest unit price. If the quantity falls within the range in which the supplier offers discount price. Then the order is termed as economic order quantities leads to minimum cost of the item. The second step is determining the total cost of the price break quantity in a year. The next step is to calculate the EOQ for every unit price. In step four, one is supposed to calculate the total cost of each valid EOQ listed above. Lastly, one should determine the minimum cost order quantity that is linked with the lowest price determined in step two and four (Johnson, Leenders &Flynn, 2010).
7. An ABC nalysis is an inventory categorization method that is used to manage materials. The method provides a mechanism that can be used to identify items that have an impact on the inventory cost. It also helps indetofy different types of stock that need different management and control.
8.
Companies are required to consider safety stock when there is uncertainty in demand. Safety stock refers to excess stock that is held to protect against lead time and change in demand. Safety stock is used to cater for the demand when the demand is higher than expected. The safety stock is calculated using the average demand on daily basis multiplied by the number of days. For instance, if the demand is 6 units in 10 days then the stock will be 60 units.
9.
The MRP model allows companies to project the future inventories in manufacturing activities. It gives managers an opportunity to plan to satisfy the final assembly schedule. It allows the managers to meet certain end product that are needed for final assembling. After determining the final assembly schedule, the managers are supposed to determine the future material needs for the schedule. The product costs for certain materials that are needed to develop the final product are broken down. The MRP is different from the EOQ model as it does not allow managers to order items if they reach reorder level, but they can order items early(Johnson, Leenders &Flynn, 2010).
10.
There are different lost size methods. That is lot for lot, economic order quantity and periodic order quantity. Other methods include the least unit cost, McLaren order moment, Silver meral and the wagner-Whitin dynamic programming algorithm. The lot size methods have different implications in terms of cost. The lot for lot method is easy to use as it used when the costs of the inventory are low. It is also used when the costs of inventory carrying are high. The economic order quantity method also has a positive cost implication as it helps balance the inventory carrying cost and ordering cost. The Periodic order quantity method is better than the economic order quantity. This is because it balances the two costs well. The other methods also have a positive implication on cost as they help minimize the inventory costs (Johnson, Leenders &Flynn, 2010).
Reference
Johnson,F.P.,Leenders,M.,&Flynn,A.(2010).purchasing and Supply Management. McGraw-Hill, 2010
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