Chapter 2: Purchasing Management
(SCM 301) Questions and Answers.
Purchasing - Answer Obtaining merchandise, capital equipment; raw materials, services, or
maintenance, repair, and operations (MRO) supples in exchange for money or is equivalent.
Merchants - Answer Wholesalers and retailers who purchase for resale.
Industrial Buyers - Answer Purchase raw materials for conversion, services, capital
equipment, and MRO supplies (manufacturing companies).
Contracting - Answer Term often used for the acquisition of services.
Supply Management - Answer A newer term to describe the expanded set of responsibilities
of purchasing professionals.
Key activities in Supply Management: - Answer 1. Negotiation
2. Logistics
3. Contract development
4. Administration
5. Inventory control
6. Supplier management
PROCUREMENT IS THE CORE ACTIVITY
Key actives in Procurement (purchasing): - Answer 1. Value analysis
2. Negotiation
3. Expediting materials
4. Contract administration
5. Supplier quality control
6. Some logistics activities
The primary goals of purchasing are: - Answer Ensure uninterrupted flows of raw materials at
the lowest total cost, improve quality of the finished goods produced, and maximize customer
satisfaction.
, Purchasing contributes to these objectives by: - Answer Actively seeking better materials and
reliable suppliers, work closely with and exploiting the expertise of strategic suppliers to
improve quality and materials, and involving suppliers and purchasing personnel in new product
design and development efforts.
Profit Leverage Effect - Answer Measure the impact of change in purchase spend on a firms
profit.
Profit Spend - Answer Money firms spend on goods and services.
A decrease in purchasing expenditures... - Answer Directly increases profits before tax
(assuming no decrease in quality or purchasing total cost).
ROA Effect - Answer A high ROA (net income/total assets) indicates managerial success in
generating profits with lower spending.
Inventory Turnover - Answer Measures how many times your inventory cycles or "turns over"
during the year.
Increased inventory turnovers indicate... - Answer Optimal utilization of space and inventory
levels, increased sales, and avoidance of inventory obsolesce.
Manual Purchasing (3 steps) - Answer 1. Material requisition/purchase requisition.
2. The request for quotation (RFQ).
3. The purchase order (PO).
Material Requisition/Purchase Requisition - Answer Stating product, quantity, and delivery
date. May originate as a planned order release from the MRP system. Traveling requisition used
for recurring orders.
Request for Quotation (RFQ) - Answer Buyer identified suppliers and issues a request for
quotation for routine items or a request for proposal (RFP) for highly technical products.
Supplier development is used to develop supplier capabilities.
Purchasing Order (PO) - Answer Is the buyer's offer and becomes legally binding when
accepted by the supplier. When vitiated by the supplier on their own terms, the document is a
sales order. The uniform commercial code (UCC) governs transactions in the US except
Louisiana.
Louisiana uses which code? - Answer Napoleonic code.
(SCM 301) Questions and Answers.
Purchasing - Answer Obtaining merchandise, capital equipment; raw materials, services, or
maintenance, repair, and operations (MRO) supples in exchange for money or is equivalent.
Merchants - Answer Wholesalers and retailers who purchase for resale.
Industrial Buyers - Answer Purchase raw materials for conversion, services, capital
equipment, and MRO supplies (manufacturing companies).
Contracting - Answer Term often used for the acquisition of services.
Supply Management - Answer A newer term to describe the expanded set of responsibilities
of purchasing professionals.
Key activities in Supply Management: - Answer 1. Negotiation
2. Logistics
3. Contract development
4. Administration
5. Inventory control
6. Supplier management
PROCUREMENT IS THE CORE ACTIVITY
Key actives in Procurement (purchasing): - Answer 1. Value analysis
2. Negotiation
3. Expediting materials
4. Contract administration
5. Supplier quality control
6. Some logistics activities
The primary goals of purchasing are: - Answer Ensure uninterrupted flows of raw materials at
the lowest total cost, improve quality of the finished goods produced, and maximize customer
satisfaction.
, Purchasing contributes to these objectives by: - Answer Actively seeking better materials and
reliable suppliers, work closely with and exploiting the expertise of strategic suppliers to
improve quality and materials, and involving suppliers and purchasing personnel in new product
design and development efforts.
Profit Leverage Effect - Answer Measure the impact of change in purchase spend on a firms
profit.
Profit Spend - Answer Money firms spend on goods and services.
A decrease in purchasing expenditures... - Answer Directly increases profits before tax
(assuming no decrease in quality or purchasing total cost).
ROA Effect - Answer A high ROA (net income/total assets) indicates managerial success in
generating profits with lower spending.
Inventory Turnover - Answer Measures how many times your inventory cycles or "turns over"
during the year.
Increased inventory turnovers indicate... - Answer Optimal utilization of space and inventory
levels, increased sales, and avoidance of inventory obsolesce.
Manual Purchasing (3 steps) - Answer 1. Material requisition/purchase requisition.
2. The request for quotation (RFQ).
3. The purchase order (PO).
Material Requisition/Purchase Requisition - Answer Stating product, quantity, and delivery
date. May originate as a planned order release from the MRP system. Traveling requisition used
for recurring orders.
Request for Quotation (RFQ) - Answer Buyer identified suppliers and issues a request for
quotation for routine items or a request for proposal (RFP) for highly technical products.
Supplier development is used to develop supplier capabilities.
Purchasing Order (PO) - Answer Is the buyer's offer and becomes legally binding when
accepted by the supplier. When vitiated by the supplier on their own terms, the document is a
sales order. The uniform commercial code (UCC) governs transactions in the US except
Louisiana.
Louisiana uses which code? - Answer Napoleonic code.
