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EXAM 2CHAPTER 7Supply Management:Broad set of activities carried out by organizations:Analyze sourcing opportunitiesDevelop sourcing strategiesSelect suppliersProcure goods and servicesMeasure and manage suppliersWhy Supply Management is critical?Global Sourcing – competing against World-Class organizationsGlobal competition requires global sourcingConsiderations•Where and when are goods and services needed?•What suppliers have the best mix of performance characteristics?Advances in information systems have enabled global sourcing efforts.Global sourcing applies to services and business processes, as well as manufactured goods.•Invoice processing, financial analysis, call centers, IT processingPerformance Impact – affecting the way your company performsQuality: Performance, Features, Reliability, Conformance, Durability, Serviceability, Perceived QualityDelivery: Right Quantity - Right Time - Right PlacePriceFinancial Impact – direct influence on bottom-line profitsFinancial Performance - DefinitionsCost Of Goods Sold (COGS) – The purchased cost of goods from outside suppliers.Merchandise inventory – A balance sheet item that shows the amount a company paid for the inventory it has on hand at a particular point in time.Profit margin – The ratio of earnings (profit) to sales (revenue) for a given time period.Profit Leverage EffectDecreasing the money spent on purchasing functions increases profit FASTER than increasing revenue as a result of marketing and sales.Every $1 saved in purchasing, lowers COGS by $1 and directly contributes $1 to bottom line profits.The Strategic Sourcing Process: 6 stepsStrategic SourcingIdentifying ways to improve long-term business performance by better understanding sourcing needs, developing long-term sourcing strategies, selecting suppliers, and managing the supply base. 1.Step 1: Assess Opportunities
Spend Analysis - The application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement. PURPOSE: Determine where efforts to change purchasing practices will have the most influence.What categories of products or services make up the bulk of company spending?How much are we spending with various suppliers? Who are our suppliers? How much are we spending with each?What are our spending patterns like across different locations? What divisions, departments, plants, business units are responsible for the most spending?2.Step 2: Profile Internally and ExternallyTwo approaches to creating profiles:a.[Internal] Category profile –Understanding all aspects of a particular sourcing category that could ultimately have an impact on the sourcing strategy.