CHAPTER 6: PROCUREMENT

1. What is procurement? What is its relevance to logistics?

Procurement refers to the raw materials, component parts, and supplies bought
from outside organizations to support a companys operations. It is closely related
to logistics since acquired goods and services must be entered into the supply
chain in the exact quantities and at the precise time they are needed. Procurement
is also important because its costs often range between 60 and 80 percent of an
organizations revenues.

2. Discuss three potential procurement objectives.

The text provides five potential procurement objectives that could be discussed.
They are supporting organizational goals and objectives; managing the purchasing
process effectively and efficiently; managing the supply base; developing strong
relationships with other functional groups; supporting operational requirements.

3. Name and describe the steps in the supplier selection and evaluation process.

Identify the need for supply => can arise from the end of an existing supply
agreement or the development of a new product. Situation analysis looks at both
the internal and external environment within which the supply decision is to be
made. Identify and evaluate potential suppliers delineates sources of potential
information, establishes selection criteria, and assigns weights to selection
criteria. Select supplier(s) is where an organization chooses one or more
companies to supply the relevant products. Evaluate the decision involves
comparison of expected supplier performance to actual supplier performance.

4. Distinguish between a single sourcing and multiple sourcing approach.

A single sourcing approach consolidates purchase volume with a single supplier

in the hopes of enjoying lower costs per unit and increased cooperation and
communication in the supply relationship. Multiple sourcing proponents argue
that using more than one supplier can lead to increased amounts of competition,
greater supply risk mitigation, and improved market intelligence.

5. Discuss the concept of Lean Six Sigma.

Lean Six Sigma integrates the goals and methods of the Lean and Six Sigma
approaches in the pursuit of quality. What sets Lean Six Sigma apart from its
individual components is the recognition that organizations cannot focus only on
quality or speed. An organizational focus on improving quality is needed as it
relates to responsiveness.

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Multiple Choice Questions

1. ____ refers to the raw materials, component parts, and supplies bought from outside
organizations to support a companys operations.

a. Inbound logistics
b. Procurement
c. Materials management
d. Supply management
e. None of the above
(b; p. 97)

2. Procurement and ____ are viewed as synonymous terms.

a. materials management
b. supply management
c. purchasing
d. inbound logistics
(c; p. 98)

3. Which of the following is not a potential procurement objective?

a. supporting organizational goals and objectives

b. managing the supply base
c. developing strong relationships with other functional groups
d. supporting operational requirements
e. all are potential procurement objectives
(e; p. 98)

4. A focus on satisfying internal customers is associated with which procurement

objective?

a. managing the supply base

b. supporting organizational goals and objectives
c. managing the purchasing process effectively and efficiently
d. supporting operational requirements
(d; p. 99)

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5. With respect to the supplier selection and evaluation process, ____ looks at both the
internal and external environment within which the supply decision is to be made.

a. Identify the need for supply

b. Identify suppliers
c. Situation analysis
d. Evaluate suppliers
(c; p. 99)

6. ____ is the third step of the supplier selection and evaluation process.

a. Identify need for supply

b. Select suppliers
c. Identify and evaluate possible suppliers
d. Situation analysis
(c; p. 99)

7. What is the final step in the supplier selection and evaluation process?

a. evaluate decision
b. implement decision
c. select suppliers
d. provide feedback
(a; p. 100)

8. Which of the following is a procurement-related quality initiative?

a. Lean Six Sigma

b. Leagility
c. ISO 14000
d. U.S. Department of Commerce Certified Supplier
e. All of the above are procurement-related quality initiatives
(a; p. 102)

9. What is the first step in a global sourcing development model?

a. specification
b. situation analysis
c. problem recognition
d. planning
(d; p. 103)

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10. ____ is often a major shortcoming to many global procurement plans.

a. Implementation
b. Evaluation
c. Specification
d. Monitoring and improving
(a; p. 103)

11. ____ materials refer to stock that exceeds the reasonable requirements of an
organization.

a. Waste
b. Obsolete
c. Scrap
d. Excess
(d; p. 104)

12. ____ materials are materials that are no longer serviceable, have been discarded, or
are a by-product of the production process.

a. Excess
b. Scrap
c. Obsolete
d. Waste
(b; p. 105)

13. ____ materials have no economic value.

a. Waste
b. Scrap
c. Obsolete
d. Excess
(a; p. 105)

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True-False Questions

1. Procurement refers to the raw materials, component parts, and supplies bought from
outside organizations to support a companys operations. (True; p. 97)

2. First and foremost, procurements objectives must manage the purchasing process
effectively and efficiently. (False; p. 98)

3. One of procurements most important responsibilities involves supplier selection and

evaluation. (True; p. 99)

4. The first step in supplier selection and evaluation is situation analysis. (False; p. 99)

5. Supply management refers to a degree of aggressive procurement not normally

encountered in supplier selection. (False; p. 101)

6. Supplier development is synonymous with reverse marketing. (True; p. 101)

7. One reason for the growth of the supplier development concept is that achieving
competitive advantage in the supply chain is predicated on purchasers adopting a
more aggressive approach. (True; p. 101)

8. Reduced costs and reduced cycle times are two benefits associated with Six Sigma.
(True; p. 102)

9. Global procurement is primarily driven by the input-output and market-access

strategies. (False; p. 103)

10. Problem recognition is the first step in global procurement. (False; p. 103)

11. Because global sourcing increases the distance that components and inputs must be
moved, managers must consider the tradeoff between transportation and holding
costs. (True; p. 103)

12. Implementation is often a major shortcoming to many global procurement plans.

(True; p. 103)

13. Obsolete materials have no economic value. (False; p. 105)