SOLUTIONS MANUAL
PURCHASING AND SUPPLY MANAGEMENT
17TH EDITION
CHAPTER NO. 01: PURCHASING AND SUPPLY MANAGEMENT
1. What is the profit-leverage effect of supply? Is it the same in all organizations?
The profit-leverage effect, covered in the section “Profit-Leverage Effect,” measures the profit
impact obtained by a decrease in purchase spend. A related concept is the return-on-assets
effect. Good answers will be able to explain the concept of profit leverage and understand how it
is impacted by the amount spent on suppliers.
2. “Supply is not profit making; instead, it is profit taking since it spends organizational
resources.” Do you agree?
From a tactical perspective, supply does spend money on goods and services and incur expenses
for the administration of supply chain activities (e.g., salaries). However, good answers will be
able to demonstrate the opportunities for supply to contribute to organizational goals and
strategies, operationally and strategically, and directly and indirectly. The potential for the
contribution of supply and the opportunities to extract competitive advantage are explained in
the section “Supply Contribution.”
3. What kind of decisions does a typical supply manager make?
There is an opportunity here for students to reflect on their own experiences, whether they have
worked directly in supply or have been exposed to supply activities while working in other
functions. Examples of supply decisions are described throughout the chapter and in the case
studies in the book.
,4. “In the long term, the success of any organization depends on its ability to create and
maintain a customer.” Do you agree? What does this have to do with purchasing and
supply management?
Organizations exist to serve their customers. Without customers, organizations will not exist. In
order to have customers, firms must provide value. How organizations provide value to
customers can differ by the nature of the organization (refer to the section “The Nature of the
Organization”) the potential for supply contribution is explained in the section “Supply
Contribution.” The challenges ahead for the supply professions are described in the section
“Challenges Ahead.”
5. Is purchasing a profession? If not, why not? If yes, how will the profession, and the
people practicing it, change over the next decade?
While there is not a definitive yes or no answer to whether purchasing is profession, it does have
many of requisites, as described in the section “Supply Qualifications and Associations.” It has
associations with ethical standards and established qualifications. Many universities have
courses and programs in purchasing and supply management. The challenges ahead for the
supply professions are described in the section “Challenges Ahead.”
6. Differentiate between purchasing, procurement, materials management, logistics, sup-
ply management, and supply chain management.
In some organizations, the nuances are subtle. The section “Purchasing and Supply
Management,” provides definitions and explains the meanings of these terms.
7. In what ways might digital technologies and e-commerce influence the role of supply
managers in their own organizations? In managing supply chains or networks?
This question requires critical thinking on the part of the students to reflect on the impact of
digital and e-commerce technologies on both the role of supply and supply chains. The material
covered in the section “Purchasing and Supply Management” provides the foundation for this
,question. Comments about digital and e-commerce technologies are covered in the introductory
paragraphs and in the section “Technology.”
8. In the energy industry, the total purchase/sales ratio is 80 percent, while it is 60 percent
in the food industry and 25 percent in the financial services industry. Explain what
these numbers mean. Of what significance is this number for a supply manager in a
company in each of these industries?
This question requires the students to reflect on the profit-leverage effect in the petroleum and
coal products and the food industries. The profit-leverage effect, covered in the section “Profit-
Leverage Effect” measures the profit impact obtained by a decrease in purchase spend. A
related concept is the return-on-assets effect.
9. How does supply management affect return on assets (ROA)? In what specific ways
could you improve ROA through supply management?
The return-on-assets effect is covered in the section “Return-on-Assets Effect,” including an
example in Figure 1-1.
10. How can the expectations of supply differ for private versus public organizations?
Services versus goods producers?
The role and expectations for supply are covered in the section “The Nature of the
Organization.” Figures 1-3 and 1-4 provide summaries of the main differences for public sector
and private sector organizations (including manufacturing and services). Note that public sector
organizations are primarily services-based.
11. In most organizations, the potential benefits of the indirect contribution of supply are
greater than the direct contributions. Do you agree? Why or why not?
See the section “Supply Contribution” and the section “The Indirect and Direct Contribution of
Supply.” While the direct contribution of can originate in several ways, it is much more difficult
to measure than direct contributions.
, 12. What are the potential benefits of suppliers regarding your organization as preferred
customer?
The section “Supply Contribution” explains the many ways that the supply function and
suppliers can influence organizational success. Asking students to explain what a “preferred
customer” represents is a good starting point. An important issue is recognizing that benefits in
the buyer-supplier relationship flow both ways and preferred customers are more likely to be the
recipients of many benefits, ranging from capacity allocation during times of shortage to early
assess to innovative new products and services.
13. How can the supply function influence customer satisfaction?
The section on “The Direct and Indirect Contribution of Supply” includes areas where the
function can influence customer satisfaction, which is an indirect contribution, and refer to the
section on the “Effect on Competitive Position/Customer Satisfaction.” Examples include better
quality, greater flexibility, and superior on-time delivery performance.
14. Why should new managers consider working in supply as part of their training and
development as future leaders in their organization?
Refer to the section “Training Ground” describing why and how supply experience represents a
good training ground for new managers.
15. How can the supply function expand its influence in an organization?
Refer to the section “Growth and Influence” discussing the growth and influence of the supply
function. It describes the four areas that provide opportunities: the percentage of the
organization’s total spend for which it is meaningfully involved, span of supply chain activities
under purchasing or supply leadership, growth can occur in the type of involvement of supply in
what is acquired and supply chain responsibilities, and involvement in corporate activities.
PURCHASING AND SUPPLY MANAGEMENT
17TH EDITION
CHAPTER NO. 01: PURCHASING AND SUPPLY MANAGEMENT
1. What is the profit-leverage effect of supply? Is it the same in all organizations?
The profit-leverage effect, covered in the section “Profit-Leverage Effect,” measures the profit
impact obtained by a decrease in purchase spend. A related concept is the return-on-assets
effect. Good answers will be able to explain the concept of profit leverage and understand how it
is impacted by the amount spent on suppliers.
2. “Supply is not profit making; instead, it is profit taking since it spends organizational
resources.” Do you agree?
From a tactical perspective, supply does spend money on goods and services and incur expenses
for the administration of supply chain activities (e.g., salaries). However, good answers will be
able to demonstrate the opportunities for supply to contribute to organizational goals and
strategies, operationally and strategically, and directly and indirectly. The potential for the
contribution of supply and the opportunities to extract competitive advantage are explained in
the section “Supply Contribution.”
3. What kind of decisions does a typical supply manager make?
There is an opportunity here for students to reflect on their own experiences, whether they have
worked directly in supply or have been exposed to supply activities while working in other
functions. Examples of supply decisions are described throughout the chapter and in the case
studies in the book.
,4. “In the long term, the success of any organization depends on its ability to create and
maintain a customer.” Do you agree? What does this have to do with purchasing and
supply management?
Organizations exist to serve their customers. Without customers, organizations will not exist. In
order to have customers, firms must provide value. How organizations provide value to
customers can differ by the nature of the organization (refer to the section “The Nature of the
Organization”) the potential for supply contribution is explained in the section “Supply
Contribution.” The challenges ahead for the supply professions are described in the section
“Challenges Ahead.”
5. Is purchasing a profession? If not, why not? If yes, how will the profession, and the
people practicing it, change over the next decade?
While there is not a definitive yes or no answer to whether purchasing is profession, it does have
many of requisites, as described in the section “Supply Qualifications and Associations.” It has
associations with ethical standards and established qualifications. Many universities have
courses and programs in purchasing and supply management. The challenges ahead for the
supply professions are described in the section “Challenges Ahead.”
6. Differentiate between purchasing, procurement, materials management, logistics, sup-
ply management, and supply chain management.
In some organizations, the nuances are subtle. The section “Purchasing and Supply
Management,” provides definitions and explains the meanings of these terms.
7. In what ways might digital technologies and e-commerce influence the role of supply
managers in their own organizations? In managing supply chains or networks?
This question requires critical thinking on the part of the students to reflect on the impact of
digital and e-commerce technologies on both the role of supply and supply chains. The material
covered in the section “Purchasing and Supply Management” provides the foundation for this
,question. Comments about digital and e-commerce technologies are covered in the introductory
paragraphs and in the section “Technology.”
8. In the energy industry, the total purchase/sales ratio is 80 percent, while it is 60 percent
in the food industry and 25 percent in the financial services industry. Explain what
these numbers mean. Of what significance is this number for a supply manager in a
company in each of these industries?
This question requires the students to reflect on the profit-leverage effect in the petroleum and
coal products and the food industries. The profit-leverage effect, covered in the section “Profit-
Leverage Effect” measures the profit impact obtained by a decrease in purchase spend. A
related concept is the return-on-assets effect.
9. How does supply management affect return on assets (ROA)? In what specific ways
could you improve ROA through supply management?
The return-on-assets effect is covered in the section “Return-on-Assets Effect,” including an
example in Figure 1-1.
10. How can the expectations of supply differ for private versus public organizations?
Services versus goods producers?
The role and expectations for supply are covered in the section “The Nature of the
Organization.” Figures 1-3 and 1-4 provide summaries of the main differences for public sector
and private sector organizations (including manufacturing and services). Note that public sector
organizations are primarily services-based.
11. In most organizations, the potential benefits of the indirect contribution of supply are
greater than the direct contributions. Do you agree? Why or why not?
See the section “Supply Contribution” and the section “The Indirect and Direct Contribution of
Supply.” While the direct contribution of can originate in several ways, it is much more difficult
to measure than direct contributions.
, 12. What are the potential benefits of suppliers regarding your organization as preferred
customer?
The section “Supply Contribution” explains the many ways that the supply function and
suppliers can influence organizational success. Asking students to explain what a “preferred
customer” represents is a good starting point. An important issue is recognizing that benefits in
the buyer-supplier relationship flow both ways and preferred customers are more likely to be the
recipients of many benefits, ranging from capacity allocation during times of shortage to early
assess to innovative new products and services.
13. How can the supply function influence customer satisfaction?
The section on “The Direct and Indirect Contribution of Supply” includes areas where the
function can influence customer satisfaction, which is an indirect contribution, and refer to the
section on the “Effect on Competitive Position/Customer Satisfaction.” Examples include better
quality, greater flexibility, and superior on-time delivery performance.
14. Why should new managers consider working in supply as part of their training and
development as future leaders in their organization?
Refer to the section “Training Ground” describing why and how supply experience represents a
good training ground for new managers.
15. How can the supply function expand its influence in an organization?
Refer to the section “Growth and Influence” discussing the growth and influence of the supply
function. It describes the four areas that provide opportunities: the percentage of the
organization’s total spend for which it is meaningfully involved, span of supply chain activities
under purchasing or supply leadership, growth can occur in the type of involvement of supply in
what is acquired and supply chain responsibilities, and involvement in corporate activities.
