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7/30/2019 DSP - 09 - Supplier Relationships and Procurement Plans
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Supplier Relationships and Procurement Plans
Main Objective of Purchasing: Maintain reliable supply of materials or services at lowest possible
price and at desired quality level.Purchasing decisions
Cost/value analysisoDirect Cost: major portion of cost; small reduction means large impact on final cost
Direct labor: geographic, union vs. non-union, workforce skillsDirect material: purchased, self manufactured
oIndirect CostEngineering overheadMaterial overheadGeneral and adminManufacturing overheadSelling and Marketing
oPrice is relative: Total Cost of Ownership is whats important (returns, bad quality,late shipments, carrying costs, etc)oProfit
Suppliers need to make a profitPrice is always considerationDetermination is subjective
oCost uncertaintySupplier cost responsibilitySupplier profitSupplier incentivesRisk and uncertainty are related
Make or BuyoCostoTimeoCapacity utilizationoProduction/quality controloSecrecyoSupplier expertise/reliabilityoVolumeoWorkforce
Award criteriaoEstablish prior to submitting requests for quotesoQualityoTimeoSecurityoExisting suppliers
Compensation agreementsoIncentive arrangements: motivate supplier to improve performance
Target costTarget profitSharing agreement
oFixed Price
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Most common/preferredWith economic adjustment: high value RMsRedetermination: fixed in initial period then adjusted per clause
oCost Plus Fixed FeeSupplier assumes no riskCustomer pays allowable costsCustomer pays agreed feeSupplier profit is low
Contractual obligationsoVerbal commitmentoPurchas credit cardoPurchas ordersoBlanket orders/releases
AdvantagesFewer PosBuyers can focus on other areasVolume pricingInformation flowLower inventory/lead timesLong-term supplier relationship
oContractsOrder placement
Pricing PrinciplesEconomic Considerations
oVariable margin pricing: companies sell line of products and establish prices togenerate profit margin for entire line.
oProduct differentiation: product really different from other suppliers or just hype?oCost plus profitoSellers market
Price AnalysisoBenchmark total priceoHistoricaloProposaloCatalog/market
DiscountsoQuantityoSeasonaloTrade
Given to buyer or distributor for performing some marketing functions ofseller
oCashContracts Elements
Mutual ObligationAgreement or meeting of mindsCompetent partiesLawful purpse
Contract Types
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Long-TermDefinite Delivery: production schedule of entire period known, high degree of certaintyIndefinite Delivery
oDefinite quantity: quantity specified; delivery is to be specifiedoRequirements: all requirements for period of time; minimum requirements
established; termination protectionoIndefinite quantity: minimum/maximum range specified; delivery to be specified;
high and low limitsOrder Placement Process:
1.Purchas Req2.Request for Proposal/Request for Quote (RFP/RFQ)3.Quote Evaluation4.Purchas Order (PO)5.Acknowledgement6.Approval of invoice7.Reconciliation
InvoicingAccounting pays invoiceReconciliations
Supplier Rating SystemsMetrics to be measured depend on needs of the companyBalanced Scorecard:
oFinancialoCustomeroBusiness ProcessoLearning and Growth
Performance measure should address:oCustomer satisfaction/qualityoTimeoCostoQualityoAssets
Performance Measurement StandardsoProduct QualityoCertificationoDelivery/performanceoCost performanceoQuantityoCooperationoOter
Buyer Performance StandardsoBuyers Service LeveloPurchasing workloadoPlanned number of buyersoNumber of documents per year per buyeroInput ratio number of res received/number of orders placedoProduct flow
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oYear-to-date expense varianceEthical Standards
Ethical perceptionsResponsibilities to EmployerConflict of Interest
Gratuities
Treatment of suppliersConfidential informationReciprocityFederal and state lawsSmall, disadvantaged, and minority-owned businessesPersonal purchases for employeesResponsibilities to the professionInternational purchasing
International ProcurementCurrency fluctuations
Transportation
Cultural
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