MNP2601 Section B with Answers-Exam Notes.

MNP2601 May/ June 2013 – Purchasing and supply management Question 1 1.1 Give three advantages and three disadvantages of a centralised organisational structure for purchasing and supply management. (6) [TB PG 31] Advantages Disadvantages Materials and products are standardised. Control is improved Supplier relations are enhanced Duplication of effort is eliminated Staff structure is top heavy There is slow response times to regional plants There is a tendency to bypass the central buying office There is less integration with user departments ADVANTAGES OF CENTRALISED STRUCTURE DISADVANTAGES OF CENTRALISED STRUCTURE  Materials and products are standardised  There is a slow response time to regional plants  Supplier relations are enhanced  Staff structure is top heavy  Duplication of effort is eliminated  There is a tendency to bypass the central buying office  Control is improved  There is less integration with user departments  Administrative costs are reduced  There is lack of insight into the requirements of dispersed plan units 1.2 Briefly explain the seven steps of the supplier selection process. (7) [TB PG 82 – 84] Step 1: Identification of potential suppliers: sources of information for initial selection and assessment Step 2: Pre-screening to reject unsuitable suppliers Step 3: Conduct Research on potentially suitable suppliers Step 4: Choose the assessment method and analyse the suppliers Step 5: Select the supplier or suppliers Step 6: On-going measurement of supplier performance Step 7: Supplier accreditation  STEP 1: IDENTIFICATION OF POTENTIAL SUPPLIERS: SOURCES OF INFORMATION FOR INITIAL SELECTION AND ASSESSMENT o There are a variety of sources available to identify suppliers eg.  Internet search engines  Chambers of commerce  Embassies and consular general officers  Credit bureaus  Reputation  STEP 2: PRE-SCREENING TO REJECT UNSUITABLE SUPPLIERS o The actual process of supplier selection can be long and drawn out and thus a costly exercise. o There are many grounds for elimination eg.  Suppliers that do not meet the organisation’s quality requirements  Suppliers that are in a poor financial situation  Suppliers that the organisation has previously rejected  STEP 3: CONDUCT RESEARCH ON POTENTIALLY SUITABLE SUPPLIERS o The depth of the investigation and the criteria used can vary widely depending on the product or service being purchased. MNP2601 Section B with Answers-Exam Notes. o Information sources for supplier research includes:  Supplier visits – time consuming and very costly  Supplier surveys or questionnaires  STEP 4: CHOOSE THE ASSESSMENT METHOD AND ANALYSE THE SUPPLIERS o Assessment methods range from the informal to the formal o Informal techniques would include the purchasing manager’s judgement for lowvalue, non-critical purchases to panel consensus where a group would discuss the relative merits of each supplier o Formal method is the weighted –point supplier performance rating where all pertinent criteria are weighted according to their importance and each potential supplier is then scored against them  STEP 5: SELECT THE SUPPLIER OR SUPPLIERS o After studying the assessment in relation to the criteria, the purchasing manager or the cross-functional team will be in a position to approve the supplier(s).  STEP 6: ONGOING MEASUREMENT OF SUPPLIER PERFORMANCE o Supplier performance measurement ca be done by using the weighted-point evaluation method with a rating sheet  STEP 7: SUPPLIER ACCREDITATION o Suppliers which have gone through the assessment selection and evaluation process successfully can be classified in three groups:  Approved suppliers – they have met the requirements of the supplier selection process  Preferred suppliers – they have shown that their past performance consistently meets and exceeds the organisation’s required levels for criteria such as quality, cost reduction, delivery & service  Certified suppliers – certification of suppliers is the ultimate supplier accolade and many organisations hold functions to make such awards. 1.3 Define a “revenue pricing model” in your own words and identify two reasons for suppliers to make use of this strategy (4). [TB PG 140] The emphasis in this model is on obtaining sufficient client revenue to pay for operating costs rather than on profit. The idea is to generate sufficient revenue through sales to keep the firm going. Suppliers use this strategy to retain skilled labour and improve capacity utilisation in times when there is a downturn in markets due to a decline in the economic cycle. 1.4 Discuss three characteristics of services which distinguish services from buying goods (3) [TB PG 272]  Services are intangible – experienced, not delivered, perception is reality  Services are heterogeneous – quality varies, difficult to compare  Service production – production and consumption simultaneous  Perishability – cannot be stored for later  Entry to the market – easy, large capital seldom required  INTANGIBILITY OF SERVICES o Services are experienced by the customer, not delivered to the customer in the sense that a tangible item is  HETEROGENEITY OF SERVICES o The variety of services available makes it difficult for the purchasing function to compare the different services to identify the most suitable supplier.  PERISHIBAILITY OF SERVICES