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Chapter Seven – Purchasing

CPIM Exam – Basics of Supply Chain Management Practice Study Sheet  Ch... thumbnail 1 summary

CPIM Exam – Basics of Supply Chain Management Practice Study Sheet 

Chapter Seven – Purchasing

Purchasing is the “process of buying”. Manufacturing Planning and Control (MPC) must decide when to order which raw materials. Purchasing then places the order and is responsible for seeing that the order arrives on time

• Manufacturing firms spend 50% of their sales dollars in the purchase of raw materials, components, and supplies

• Purchasing objectives include 1) obtaining right quantity and quality of services 2) getting the lowest costs 3) ensuring best supplier services 4) maintaining good supplier relationships

• To meet objectives must 1) determine purchasing specifications 2) select right suppliers 3) negotiate the best price 4) administer process

Purchasing cycle consists of 1) receiving requisitions 2) select suppliers (RFQ) 3) determine correct price 4) issuing purchase orders 5) follow up to ensure delivery dates met 6) receiving and accepting materials 7) approving invoices for payment

• Specification elements consist of 1) quantity requirements 2) price requirements 3) functional requirements

Functional specifications are concerned with the end use of the item and what the item is expected to do. Functional specifications are the most important specifications

Quality can be said to be met if it satisfies the needs of the user. The phases of providing user satisfaction include 1) quality and product planning 2) quality and product design 3) quality and manufacturing 4) quality and use

• Functional specifications can be described 1) by brand 2) by physical characteristics including performance 3) by engineering drawings

• Description by brand is used where the items are patented or the supplier has created a preference

• Specifications are by buyer (custom) or by standard specifications (industry or government standards)
• There are three types of supplier sourcing
        1. sole sourcing – only one supplier available
        2. multiple sourcing – use more than one supplier for the item (better service and lower cost)
        3. single sourcing – dedicate to one supplier when there is more than one available to produce a long-term partnership
• Factors in selecting suppliers include 1) technical ability 2) manufacturing capability 3) reliability 4) after-sales service 5) supplier location 6) other considerations (credit terms) 7) price

• Ranking method is used (criteria and weight) to select suppliers

• Fair price is a competitive price. Use fixed and variable costs to analyze.

• Four types of products for price negotiations 1) commodities (copper, coal, etc…) 2) standard products (by many suppliers) 3) items of small value (lower cost of ordering) 4) made to order items

Planner / buyer responsibilities include 1) developing materials requirements 2) developing schedules 3) issuing shop orders 4) releasing material 5) priorities etc…

• Contracting buying assures suppliers a given amount of business and minimizes transaction costs

• EDI enables customers and suppliers to electronically exchange transaction information such as purchase orders, invoices and material requirements

• Internet, Intranet, and Extranet (shared Intranet) available only to company and other party sharing