Question

1. What is a pain and gain share agreement?

                                        

2. When discussing LEAN and Six Sigma, is one philosophy more important than the other?

3. What are the two different types of purchasing organizations? Name two advantages for each.

4. What is the profit-leverage effect? Why is it important for purchasing managers?

5. What is the purpose of bonds in procurement?

6. What does a preferred supplier provide a company that other suppliers may not?

7. What are the benefits of strategic alliances?

8. Give two reasons why a firm would make rather than buy. Give two reasons why a firm would buy rather than make.

9. How can the VOC be used to help a company improve?

10. How does ethical sourcing differ from sustainability?

11. Why is it important to use multiple criteria in developing a supplier scorecard?

12. How can a firm combat the risks of bottleneck items?

13. Why do companies use the supplier development program?

14. What is a potential sourcing strategy for functional products? What is a potential sourcing strategy for innovative products?

15. Give an example of a product for each of the following manufacturing strategies:

• MTS
• ATO
• MTO
• ETO

16. What is the main insight of total cost of ownership (TCO)?

1. What can cause and effect diagrams be used for?

Answer 1

1)

Pain and gain share agreement is a form of target cost. They introduce a mechanism that enables the contractor and consultant team to share the benefit of cost savings and also to bear some of the cost where cost overruns. The essential feature of the contract is that it is different from other types of payment mechanism as it is based on a formula which may either part of the contractors tender or agreed on post-tender or specified by the employer. A common method used by the mechanism is to divide overspend and underspend on a percentage basis.

2)

I don't think that one philosophy dominates others. Scholars are still debating about which is more important than others. Six sigma concentrates on process improvement while LEAN on improving operating costs. Thus, we could say that both have their own goals and method. One cannot simply say that one is important than others. It may change as per the situations and needs.

3)

A centralized purchasing organization refers to that purchasing organization in which all the purchases are made at a single central point for the whole organization. It is suitable when purchase items are low and the budget is large
Advantages
Better supervision of the purchase of materials
Standardized activities can be assured.
Decentralized purchasing organization refers to the purchasing organization in which all the purchases are made through purchasing agents but it is coordinated by the centralized purchasing organization
Advantages
An initial large investment is not required
Materials are timely available as it is purchased locally

4)

The purchase leverage effect interprets the reality of how different it makes in saving a unit of monetary value at the time of purchasing when related to having that same unit of monetary value to the sales. The value saved in purchase has much value than the sales.
It would guide the managers to attain a profit increase. This would help the purchasing managers to spend the value with the utmost care.