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1、Chapter 4: ProcurementStudy Questions1. Why does the contemporary view of procurement as a strategic activity differ from the more traditional view of purchasing?Purchasing has been typically viewed as a low-level managerial activity responsible for executing and processing orders for other departme
2、nts of the organization. Its role was to obtain the resource at the lowest possible price from the supplier. Procurement on the other hand has a more strategic role that emphasizes on establishing relationships between buyers and sellers to accomplish multiple objectives. The need for procurement ar
3、ose due to the recognition of substantial dollar volume of purchases and the potential dollar savings from this strategic approach2. How can strategic procurement contribute to the quality of products produced by a manufacturing organization?The quality of the final product depends on the quality of
4、 parts or materials that goes into making it. However ensuring the quality of individual item may not be the sufficient, because it has been observed that if a standard part is procured from different suppliers, it is possible that the final product may encounter quality problems. By maintaining a q
5、uality perspective with the suppliers, strategic sourcing can make a substantial impact on the saving cost for the organization.3. How does lowest TCO differ from lowest purchase price?Purchase price is one of the major concerns of procurement so firms typically try to negotiate for the lowest price
6、. They also try to get quantity discounts and associated logistical benefits out of the purchase price. Apart from the standard services, there could be other value-added services that are offered by the sellers. For example a seller may deliver truckloads of material as a standard service; however
7、delivery of smaller and more frequent shipments would represent a different level of service that would come at a cost to the buyer. It is important to understand the trade-offs between the value-added service and its price in determining the total cost of ownership. The final component of TCO is th
8、e lifecycle costs like administrative expenses, costs of rework, replacement, scrap etc that are incurred before and after the purchase of the materials.Therefore the purchase price of a material is only a portion of the total cost of ownership for a firm. Even though the purchase price remains the
9、most important component of cost, other cost factors like service costs and life cycle costs should also be evaluated.4. Explain the rationale underlying volume consolidation. What are the risks associated with using a single supplier for an item?Volume consolidation is one of the most common procur
10、ement strategies that are used by firms. By consolidating its purchase volume the buying company can leverage its share of the shippers business. It also gives the buyer a greater negotiating strength. From the sellers perspective, such an arrangement can offer greater economies of scale by being ab
11、le to spread the fixed costs over greater volume of output. Moreover, if the large volume of business is assured to the supplier, it will be willing to invest in improving its processes and customer service. Many companies have generated a lot of dollar savings by adopting this strategy.There may be
12、 risks associated with having a single supplier for an item. In the event of any disruption in supply, the buying company does not have any alternative. Moreover due to lack of competition, the supplier might charge higher. Therefore companies should undertake rigorous screening to determine the str
13、ategic suppliers and rather than having only one supplier for the items, they should aim for a small pool of suppliers.5. What is the underlying rationale that explains why firms should segment their purchase requirements? Explain the concept of procurement strategy portfolio.It has been usually fou
14、nd that a small percentage of material purchases account for a large percentage of the total dollar spent by a firm. This shows that all procured items/services are not similar and therefore it would be more cost-effective for a firm to segment its purchase requirements and adopt different strategie
15、s. The segmentation should not only be based on the dollar expenditure but should also consider the impact that the items have on the companys competitiveness. Supply base reduction and volume consolidation can however be appropriate for all types of material classes.6. Explain how logistics perform
16、ance is crucial to a JIT philosophy.The philosophy of JIT is to carry out activities in a time-phased manner so that the purchased materials arrive at the manufacturing point just at the time they are required for the transformation. It is not just restricted to the internal operations of the company but also involves the suppliers. Reliable logistics performance is absolutely crucial to eliminate or at least reduce the need for buffer stocks of material. This can be achieved by close cooperation between the manufacturers purchasing organization and the suppliers.