361 Chapter 7 Sourcing & Purchasing Slides revised

361 Chapter 7 Sourcing & Purchasing Slides revised...

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Sourcing decisions and purchasing activities serve to link a company with its upstream supply chain partners.
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1. Sourcing decisions High level, often strategic decisions regarding which products or services will be provided internally and which will be provided by external supply-chain partners. 1. Purchasing The activities associated with identifying needs, locating and selecting suppliers, negotiating terms, and following up to ensure supplier performance.
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To compete globally, you need to purchase globally. Global purchasing efforts are supported by advances in information systems. The Changing Global Competitive Landscape:
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For the average manufacturer, 52.5% of the value of shipments comes from materials. Purchasing represents a major opportunity to increase profitability. Financial Impact
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Earnings and Expenses Sales $26,491 COGS $18,465 Pretax earnings $2,359 Selected Balance Sheet Items Merchandise inventory $3,968 Lowe’s Company Every dollar saved in purchasing increases pretax profit by one dollar Every dollar saved in purchasing lowers inventory (assets) by one dollar
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Earnings and Expenses Current With 3% saving Sales $26,491 $26,491 COGS $18,465 $17,911 Pretax earnings $2,359 $2,913 Selected Balance Sheet Items Merchandise inventory $3,968 $3,849 3% purchasing reduction in COGS Pretax earnings increase by $554 (23.4%) ROA increases from 14.6% to 18.2%
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1. Quality. 2. Delivery. 3. Ability to exploit new technologies. Performance Impact:
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Sourcing decisions are high-level, often strategic decisions that address: Which will use resources within the firm. Which will be provided by supply chain partners.
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Insourcing : The use of resources within the firm to provide products or services. Outsourcing : The use of supply chain partners to provide products or services. Make or Buy Decision
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Advantages High degree of control Ability to oversee the entire program Economies of scale and/or scope Disadvantages Required strategic flexibility Required high investment Loss of access to superior products and services offered by potential suppliers
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Advantages High strategic flexibility Low investment risk Improved cash flow Access to state-of-the-art products and services Disadvantages Possibility of choosing a bad supplier Loss of control over the process and core technologies Communication and coordination challenges “Hollowing out” of the corporation
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1. Single sourcing
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361 Chapter 7 Sourcing & Purchasing Slides revised...

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