MGSC 487 GAFFNEY FINAL QUESTIONS AND
ANSWERS | LATEST UPDATE
Fair Price - Answers - lowest price that ensures continuous supply of proper quality
where and when needed; to be truly fair the supplier needs to be making a profit
What does the accuracy in determining a fair price depend on? - Answers - past
experience, knowledge of production processes and their costs, logistics costs
What makes continuous supply possible in the long run? - Answers - if the supplier is
making a reasonable profit (after total costs)
What is necessary for a meaningful analysis of a price/cost relationship? - Answers -
classification of costs into variable/semi variable/fixed
Cost Approach - Answers - uses a price that is a certain amount over direct costs,
allowing for sufficient contribution to cover indirect costs, overhead, and a margin for
profit - Negotiation can be a useful tool
Market Approach - Answers - implies that prices are set in the marketplace and may not
be directly related to cost - think supply and demand
How can you get around the market approach cost other than negotiation? - Answers -
service contracts, covering holding costs, substitution, faster delivery, make/buy, long-
term contracts, outsource/insource etc.
Sherman Antitrust Act - Answers - made price fixing illegal/can't collaborate to set them
Robinson Patman Act - Answers - aka "one price law" says that suppliers must sell the
same item at the same price in the same quantity to all customers
Exceptions to Robinson Patman Act - Answers - buying in bulk, local competition (gas
prices), moving obsolete material, as well as certain commerce transactions (men vs.
women at a bar)
Firm-Fixed Price - Answers - Will not change under any circumstances, buyer prefers
this type, however if delivery date is way out in the future, supplier may rear substantial
change in price risk
Cost-plus-fixed-fee - Answers - this happens when an item is experimental/future costs
can't be predicted; buyer agrees to reimburse the supplier for all reasonable costs
incurred plus a fixed amount for profit
, Cost-No-Fee - Answers - suppliers sells items at cost to buyer (basically just to get their
business). supplier makes no tangible profit from this transaction
Cost-Plus Incentive-Fee - Answers - fluctuates based on costs, motivates supplier to be
more efficient with costs because the lower their costs, the higher they'll make based on
the compensation structure
What's more important lowest total cost or buying lowest prices? - Answers - lowest
total costs
what are the keys to getting lowest total costs? - Answers - reduce waste and use
information effectively (negotiation)
strategic cost management - Answers - externally focused process of analyzing costs in
overall value chain with focus on YEAR OVER YEAR cost savings
Breakdown for A items - Answers - A = 80% spend, 10-15% items
Breakdown for B items - Answers - B = 15% spend, 25% items
Breakdown for C items - Answers - C = 5% spend, 60-70% items
What is risk in terms of quadrant analysis? - Answers - how easy or difficult it is to
acquire
What is value in terms of quadrant analysis? - Answers - "perceived" value to the
organization
what is focus of noncritical/routine products? - Answers - continuous improvement
what is focus of commodity component? - Answers - a TCO strategy
what is focus of a strategic component? - Answers - assurance of supply and low total
cost of ownership
what is focus of a bottleneck component? - Answers - assurance of supply strategy
what do TCO models do? - Answers - attempt to determine all the cost elements,
revealing opportunities for cost reduction or cost avoidance for each cost element,
rather than merely analyzing or comparing prices
Ways to get assurance of supply - Answers - Long term contract
Penalties for supplier --- > be careful
Dual source
In source
ANSWERS | LATEST UPDATE
Fair Price - Answers - lowest price that ensures continuous supply of proper quality
where and when needed; to be truly fair the supplier needs to be making a profit
What does the accuracy in determining a fair price depend on? - Answers - past
experience, knowledge of production processes and their costs, logistics costs
What makes continuous supply possible in the long run? - Answers - if the supplier is
making a reasonable profit (after total costs)
What is necessary for a meaningful analysis of a price/cost relationship? - Answers -
classification of costs into variable/semi variable/fixed
Cost Approach - Answers - uses a price that is a certain amount over direct costs,
allowing for sufficient contribution to cover indirect costs, overhead, and a margin for
profit - Negotiation can be a useful tool
Market Approach - Answers - implies that prices are set in the marketplace and may not
be directly related to cost - think supply and demand
How can you get around the market approach cost other than negotiation? - Answers -
service contracts, covering holding costs, substitution, faster delivery, make/buy, long-
term contracts, outsource/insource etc.
Sherman Antitrust Act - Answers - made price fixing illegal/can't collaborate to set them
Robinson Patman Act - Answers - aka "one price law" says that suppliers must sell the
same item at the same price in the same quantity to all customers
Exceptions to Robinson Patman Act - Answers - buying in bulk, local competition (gas
prices), moving obsolete material, as well as certain commerce transactions (men vs.
women at a bar)
Firm-Fixed Price - Answers - Will not change under any circumstances, buyer prefers
this type, however if delivery date is way out in the future, supplier may rear substantial
change in price risk
Cost-plus-fixed-fee - Answers - this happens when an item is experimental/future costs
can't be predicted; buyer agrees to reimburse the supplier for all reasonable costs
incurred plus a fixed amount for profit
, Cost-No-Fee - Answers - suppliers sells items at cost to buyer (basically just to get their
business). supplier makes no tangible profit from this transaction
Cost-Plus Incentive-Fee - Answers - fluctuates based on costs, motivates supplier to be
more efficient with costs because the lower their costs, the higher they'll make based on
the compensation structure
What's more important lowest total cost or buying lowest prices? - Answers - lowest
total costs
what are the keys to getting lowest total costs? - Answers - reduce waste and use
information effectively (negotiation)
strategic cost management - Answers - externally focused process of analyzing costs in
overall value chain with focus on YEAR OVER YEAR cost savings
Breakdown for A items - Answers - A = 80% spend, 10-15% items
Breakdown for B items - Answers - B = 15% spend, 25% items
Breakdown for C items - Answers - C = 5% spend, 60-70% items
What is risk in terms of quadrant analysis? - Answers - how easy or difficult it is to
acquire
What is value in terms of quadrant analysis? - Answers - "perceived" value to the
organization
what is focus of noncritical/routine products? - Answers - continuous improvement
what is focus of commodity component? - Answers - a TCO strategy
what is focus of a strategic component? - Answers - assurance of supply and low total
cost of ownership
what is focus of a bottleneck component? - Answers - assurance of supply strategy
what do TCO models do? - Answers - attempt to determine all the cost elements,
revealing opportunities for cost reduction or cost avoidance for each cost element,
rather than merely analyzing or comparing prices
Ways to get assurance of supply - Answers - Long term contract
Penalties for supplier --- > be careful
Dual source
In source
