Solution Manual For Purchasing and Supply Chain Management 8e Robert B. Handfield, Larry C. Giuniper

Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 1: Introduction to Purchasing and Supply Chain Management

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 1: Introduction to Purchasing and Supply Chain Management

TABLE OF CONTENTS Discussion Questions................................................................................................................................... 2

© 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 1: Introduction to Purchasing and Supply Chain Management

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

1. Why are more top managers recognizing the importance of purchasing/supply management?

Answer:  The presence of world-class competitors, both domestically and internationally, is forcing organizations to improve their purchasing & supply chain practices and processes.  Shifts to outsource more items meaning there are more purchase dollar expenditures to manage. Decisions need to be made in terms of domestic outsourcing versus offshoring.

The increasing volatility of the supply marketplace created by tariff wars, country conflicts and resource scarcity.

2. What is the difference between purchasing and supply management? What is the difference between supply chain orientation and supply chain management?

Answer:  Purchasing is a functional group as well as a functional activity.  Supply management is a strategic approach to planning for and acquiring the organization’s current and future needs.  Supply chain orientation is a higher-level recognition of the strategic value of managing operational activities and flows within and across a supply chain.  Supply chain management endorses a supply chain orientation and involves proactively managing the two-way movement and coordination of goods, services, information, and funds from raw material through end user 3. What is the difference between a supply chain and a value chain?

Answer:  A Supply chain is a set of three or more organizations linked directly by one or more of the upstream or downstream flows of products, services, finances, and information from a source to a customer. A supply chain is a subset of the value chain. 

A value chain is composed of primary and support activities that can lead to competitive advantage when configured properly. A value chain is the accumulation of these activities’ results in the total value provided by a firm.

4. Do you think organizational purchasers should behave like entrepreneurs? Why or why not?

Answer: Purchasers manage a line of commodities requiring the expenditure of corporate funds. As a result, they must be self-motivated in their approach, take risks, interact with multiple stakeholders in formulating strategies and plans to effectively purchase those commodities.

All these characteristics and duties are similar to those required of someone running a small business.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 1: Introduction to Purchasing and Supply Chain Management

5. What are some of the factors that might influence how important purchasing is to the success of an organization?

Answer:  The amount of spend as a percentage of total revenue  Recognition by upper management that purchasing is a strategic function  Appropriate budget for personnel and technology  The need to increase value and savings  Recognizing the importance of building supplier relationships to drive innovation  Improving end customer quality and product reputation through proper supply base selection  Reducing time to market to make the firm’s products and services more competitive  Realizing that supplier risk affects bottom-line revenue and profitability  Recognizing that utilizing strategic sourcing contributes to competitive advantage 6. With the expected increase in AI, robotics, and automation, what knowledge and skills do you feel are required for a purchasing professional?

Answer:  Ability to interface with and deploy these technologies through: o Formal Education o Certifications o Strategic thinking o Leadership o Managing cross-functional teams o The ability to see the ―big picture‖ and use a process approach o ―Soft‖ skills o Data and analytics o Total cost analysis o Market analysis o Fact-based decision making 7. Why does the collective behavior of supply managers have such an impact on economic trends as reported in the ISM Report on Business?

Answer:  The collective actions of supply managers have the power to move financial markets due to their sizable impact on GDP and economic activity.  ISM Report on Business is a major financial indicator which reflects the collective input of purchasing managers.

8. What impacts will technology have on supply base innovation and risk management, and will technology allow supply managers to spend more time on these two areas?

Answer:  Technology will improve end-to-end supply chain visibility which will lead to an improved ability to bring innovations. Additionally, technology can highlight areas of potential threats, allowing purchasing managers to take a more proactive approach to mitigate such risks earlier.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 1: Introduction to Purchasing and Supply Chain Management

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Yes, since technology will automate routine activities, allowing more time for strategic issues.

9. Discuss the four enablers of purchasing and supply chain excellence.

Answer:  Capable human resources o A key to the success of any company is the quality of its employees o The need for interpersonal skills to manage relationships o The ability to interpret data and analytics o The ability to understand cost management o Technological savvy o Sound human resources strategy  Proper organizational design o The process of assessing and selecting the structure and formal system of communication, division of labor, coordination, control, authority, and responsibility required to achieve organizational goals o The proper use of teams  Real-time collaborative technology capabilities o Cloud-based information technology o Mobile devices o Planning and execution software o AI driven data and analytics  Right measures and measurement system o Knowing what to measure o A process in place to measure o Accessibility to the right data o Support for fact-based decision making and implementation o The ability to communicate requirements to other supply chain members o The ability to improve supplier performance o The willingness to recognize outstanding performance 10. Briefly discuss each of the seven periods in the evolution of purchasing and supply management.

What do you forecast for the future?

Answer:  The Early Years (1850 – 1900) o Manufacturing-based o Purchasing managers functioned as the ―materials man who selects, purchases, receives, and delivers all articles required‖. o The Railroad industry was an early adopter of purchasing activities.  Growth of Purchasing Fundamentals (1900 – 1939) o Expansion of purchasing outside the railroad industry o Development of basic purchasing procedures and ideas o During World War I the role of purchasing and supply management was vital for obtaining vital war materials. o Focus on sourcing or raw materials, instead of buying finished or semi-finished goods

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 1: Introduction to Purchasing and Supply Chain Management

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The War Years (1939 – 1946) o Emphasis on obtaining scarce materials during wartime o An increased number of colleges began offering purchasing courses o The importance of professional organizations focused on purchasing The Quiet Years (1947 – Mid-1960s) o Decline of purchasing awareness post-World War II o Purchasing was treated as an inescapable cost of doing business and regarded as a negative function. o Wider dissemination of purchasing practices o Development of value analysis Materials Management Era (Mid-1960s – Late 1970s) o Organizations combined related functions such as purchasing, inventory control, receiving, and stores under the authority of one individual. o The issue of supply disruptions such as the Vietnam War and the Arab oil embargoes moved organizations to become more efficient. o Emphasis on multiple sourcing through competitive bid pricing o Suppliers were not considered value-adding and were held at an arm’s length in relationships. o Price competition o Purchasing as a largely clerical function The Global Era (Late 1970s – 1999) o Inadequacies of materials management during times of severe economic recession o Rise of total quality management o Intense global competition o Global firms building market share vs. American firms o Technology changed the purchasing work environment o Shorter product life cycles o Emerging Internet Integrated Supply Chain Management and Technology (2000 – 2025) o Implementing new technologies such as AI, QR codes, 3D printing, blockchain etc. o Importance of managing the best suppliers o Cooperative relationships o Enabling innovation in the supply base o Use of full-service suppliers o Source-to-Pay systems & automation of processes o Global in scope to coordinate external events such as wars, natural disasters, & tariffs

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

TABLE OF CONTENTS Discussion Questions................................................................................................................................... 7

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

11. How can an effective purchasing department affect organizational performance?

Answer:  Provide supply assurance  Manage the procure-to-pay process efficiently and effectively  Manage supplier performance  Develop aligned goals with internal stakeholders  Develop integrated supply strategies that support business goals and objectives  Conduct spend analysis  Provide demand management and specifications/SOWs  Provide category management and supplier evaluation/selection  Provide contract management  Provide cost management  Manage supplier relationships  Establish supply management strategy 12. Discuss the concept of the internal customer. Who are purchasing’s internal customers?

Answer:  An internal customer is often called a stakeholder with operational requirements. o Have a significant stake in the outcome of purchasing decisions  Purchasing supports: o The needs of operations o The requirements of physical distribution centers o Engineering and technical groups o New product development  Typical internal customers o Marketing o Operations o Manufacturing o Engineering o Research and development o Finance o Information technology o Human resources 13. Discuss the contributions a purchasing department can make to the corporate strategic planning process.

Answer:  Demand management

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

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Category strategies Contract management Cost management Procure-to-pay improvement Supplier relationship management Spend analysis

14. List the areas typically considered within purchasing’s span of control. Explain why it is important that purchasing have authority over each of these areas.

Answer:  Forecasting and planning requirements  Requisition clarification  Supplier identification and selection  Contract/purchase order preparation  Receipt and inspection  Invoice settlement and payment  Records maintenance  Measuring supplier performance  Improving the procure-to-pay process 15. Describe how purchasing becomes aware of purchase requirements.

Answer:  Annual or biannual planning processes  New product development activities  Meeting with internal customers  Forecasts and customer orders  Purchase requisitions  Routine reordering systems  Stock checks 16. How is anticipating a material requirement or need through purchasing’s involvement on a newproduct development team different from reacting to a purchase need?

Answer:  Proactively considering both potential and existing suppliers as a selection process may be a lengthy process.  Purchasing involvement encourages early supplier involvement and capability utilization, including ability to assist in product design and technologies.  The need to drive out costs early in the process.  Evaluation of specifications and the suitability of lower cost materials 17. Why do some firms no longer rely only on competitive bidding when awarding purchase contracts?

Answer: Competitive bidding is required for many government contracts but is not always the most effective approach for complex and innovative new products.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

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Conditions favoring competitive bidding o Volume is high o Specifications or requirements are clear to the supplier o Marketplace is competitive o Buyers ask for bids only from technically qualified suppliers o Adequate time is available o Buyer does not have a preferred supplier Conditions favoring negotiation o When any of the competitive bidding criteria are missing o When the supplier requires agreement about a wide range of performance factors o When the buyer needs supplier involvement o When the supplier cannot determine risks and costs o When the supplier requires a long period of time to develop and produce the items

18. Provide a list of the major documents that are covered in a suite of e-procurement software tools.

Answer:  Specifications or blueprints  Purchase order  Blanket purchase order  Material purchase release  Advanced shipping notice  Receiving and inspection reports  Material packing slips  Bill of lading  Receiving discrepancy report  Invoice 19. Discuss the advantages of electronically transmitting and receiving purchasing documents between a buyer and seller. What are the challenges involved in implementing e-procurement tools?

Answer:  Advantages o Speed o Accuracy o Consistency o Availability o Recordkeeping o Visibility o Analysis  Challenges o Cost o Software and hardware updates o Need for training

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

20. Why is it important to measure and monitor supplier performance improvement over time?

Answer:  Develop insight into current conditions in supply markets  Ensure suppliers remain competitive  Improve existing suppliers  Develop new supplier capabilities  Maintain and improve supplier relationships  Drive continuous improvement  Support future purchasing decisions

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

21. How does a just-in-time purchasing and production system reduce the need for certain purchasing documents?

Answer:  Requires a high level of supplier qualification, rendering multiple inspections moot  Small frequent deliveries direct-to-user bypasses the normal receiving processes 22. Why is purchasing becoming increasingly involved in the purchase of transportation services and other non-traditional purchasing areas?

Answer:  Leverage existing buying expertise into non-traditional purchasing areas such as transportation.  Transportation deregulation allows for service agreement and rate discount negotiation with individual carriers and service providers.  Allows for coordination of inbound and outbound flows of products.  Suppliers can coordinate or provide transportation services as needed.

23. Discuss how the purchase of capital equipment differs from the purchase of routine supplies.

Answer:  Capital equipment use exceeds one year o Types of capital equipment include standard general equipment, computers, and furniture as well as specially designed equipment. o Capital equipment purchases do not occur with regular frequency o Capital equipment purchases require large sums of money o Highly sensitive to general economic conditions  Routine supplies are ongoing purchases o Raw materials o Semifinished products and components o Finished products o Maintenance, repair, and operating supplies o Production support items o Transportation

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 2: The Purchasing Process

24. Develop a list of topics that non-purchasing personnel should be allowed to talk about with their counterparts at suppliers. Develop a list of topics that only purchasing should be allowed to talk about with suppliers.

Answer:  Non-purchasing personnel o Technical product performance o Comparison of competing technologies o Specifications o Quality o Research and development activities o Technical ability o Product design  Purchasing personnel o Price o Delivery o Payment terms o Relationship building o Performance measurement and evaluation o Documentation o Contract issues and terms o Reporting and communication o Dispute resolution 25. What is the difference between a purchase order and a blanket purchase order? What are the advantages of using blanket purchase orders?

Answer:  Purchase order o Also known as a purchase agreement o Can be used for a one-time, nonrecurring purchase o Is closed upon receipt of the goods or service provided o Must be negotiated each time issued  Blanket purchase order o Remains open for a period of time, generally one year o Covers repeated purchases of an item or family of items o Goods are shipped upon receipt of a routine order release as needed o Used for goods and services needed on an ongoing basis o No need for ongoing negotiations o Requires an escape clause to terminate the agreement ahead of time  Advantages of blanket purchase orders o One time negotiation o Can be used for multiple items over time o Simplifies the ordering process o Lower administrative effort during the contract period o Material order releases can be done by internal user, not just the purchasing department

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 3: Purchasing Policy and Procedures

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Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 3: Purchasing Policy and Procedures

TABLE OF CONTENTS Discussion Questions................................................................................................................................. 14

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 3: Purchasing Policy and Procedures

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

26. Write a brief policy statement that presents a position on the need for utilizing more diverse suppliers. What are the features or characteristics that your policy statement should have?

Answer: Answers will vary by student but should have the following features:      

Action-oriented Relevant Concise Unambiguous/well understood Timely and current Helpful in solving problems

27. Why is it important to include a policy that outlines the origin and scope of purchasing authority?

What might happen if such a policy did not exist?

Answer: Having a policy is important because the policy:    

Describes areas where purchasing authority does or does not exist.

Tells purchasing how to conduct business and represent the organization’s interests.

Describes the limits of purchasing authority by organization level.

Details the authority of purchasing to delegate certain tasks or assignments to other departments or functions.

What might happen if the policy did not exist:  

Purchasing may not have sufficient expertise in some nontraditional areas.

Junior employees could obligate the organization in very large contracts.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 3: Purchasing Policy and Procedures

28. Why should management periodically review its purchasing policies and procedures? What are the potential consequences if management does not review policies and procedures? How often do you think it should go through a minor or major set of rewrites?

Answer:    

Periodic policy review is an opportunity to define and clarify an organization’s management objectives in changing business environments.

Policies that are subject to different interpretations will, over a period of time, result in divergent outcomes and inconsistent behavior.

A policy is ineffective or counterproductive if it is outdated, as people will simply ignore it.

Purchasing may need to update training documentation to reeducate the workforce about new purchasing policies so that everyone knows how their jobs and workflow may have changed

29. What are the benefits associated with a comprehensive policy and procedure manual? Is there a downside to the manual being too comprehensive? What are examples of being ―over the top‖ when it comes to policies?

Answer: Benefits of a comprehensive policy:    

Opportunity to define and clarify an organization’s management objectives Communicates management’s leadership and views Framework for consistent decision making and action Define the rules and procedures that apply to all employees

Indications that a policy is ―over the top‖: 

The policy is too comprehensive does not allow employees to exercise their individual judgments

30. Discuss the concept of ethics. Why is the purchasing profession particularly sensitive to this topic?

Answer:    

Ethics identifies common principles associated with appropriate vs. inappropriate actions, moral duty, and obligation that guides behavior.

Ethics outlines justice and fairness throughout business relationships.

Purchasing has the ability to spend significant sums of an organization’s funds and could divert them to the individual’s personal interests Purchasing faces significant pressure to act in unethical ways.

31. Companies such as Walmart and IBM are enforcing environmental performance in their supply base. What do you suppose is the motivation for doing so? How does this decision impact the brand of these and other companies?

Answer:

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 3: Purchasing Policy and Procedures

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Sustainability is a growing emphasis in global business.

Global business and popular press are increasingly paying attention to corporate social responsibility and can generate negative press that would impact an organization’s public relations.

Increased number of local, state, and federal laws dictate certain environmental behaviors.

32. How important is LHR in today’s supply chain environment? Why is it important? What are the implications for fair trade, sourcing overseas, and policy adoption in a global sourcing environment? Why is it so difficult to monitor suppliers that are guilty of violating LHR guidelines?

Answer: Importance of LHR in the supply chain environment:  

LHR refers to labor and human rights.

Many companies have policies governing ethical treatment of people at suppliers’ facilities but do very little to truly monitor human rights violations in low-cost country supply chain manufacturing locations, taking the attitude ―out-of-sight-out-of-mind‖.

Importance of fair trade in a global sourcing environment: 

For public companies, many stockholders demand evidence that the company is doing the right thing controlling this business practice.

Why it is difficult to monitor suppliers guilty of violating LHR guidelines:  

It is difficult to conduct routine audits overseas and uncover evidence of forced labor.

Many functions are responsible for buying goods and services without purchasing oversight and assistance.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 4: Supply Management Integration for Competitive Advantage

33. What are the risks associated with backdoor (maverick) buying and selling? Why is purchasing interested in controlling this business practice?

Answer:    

Maverick spend is seldom conducted with the same level of control and can be influenced by unethical suppliers and sales representatives.

Maverick spend opens the organization up to potential negative repercussions for irregular purchases and business dealings Maverick spend can undermine purchasing’s legitimate authority Suppliers may interpret statements and opinions of non-purchasing personnel as commitments.

34. Consider the elements of the code of conduct developed by Caterpillar in Sourcing Snapshot: Caterpillar’s Code of Conduct. What are some specific examples of purchasing behavior that would violate elements of this code of conduct?

Answer:      

Selective sharing of information Lying Bribery and kickbacks Irregular business dealings Unauthorized sharing of confidential or inside information Fraud

35. This chapter listed a number of different operational procedures. Describe and discuss three additional topic areas that might benefit from written procedures.

Answer: Answers will vary by student. In general, procedures that are complicated and contextspecific should be written down, to provide some decision-making authority by the individual. [return to top]

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 4: Supply Management Integration for Competitive Advantage

TABLE OF CONTENTS Discussion Questions................................................................................................................................. 18

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 4: Supply Management Integration for Competitive Advantage

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

36. Describe the different types of integration activities that supply management should become actively involved in.

Answer:    

Cross-functional project teams such as sourcing or new-product development teams Cross-location teams (different business units within the same organization) Cross-organizational teams composed of customers, suppliers, or both Government and local communities

37. Describe the types of information and data that supply management may share with different internal and external functions.

Answer: Information about:  

Markets Plans and requirements

Knowledge and experience in:  

Understanding products and services and technology Understanding processes and how they work

Competitive business advantages such as:   

How favorable cost structures that can benefit customers The impact of economies of scale and productivity improvements Bringing different perspectives on issues to ensure the best solutions are chosen.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 4: Supply Management Integration for Competitive Advantage

38. What are the barriers to external integration and closer supplier relationships? How can they be overcome?

Answer: Barriers:       

Traditional buyer-supplier relationships Internal functional silos Lack of trust by either or both parties Confidentiality of intellectual property, finances and processes Limited interest by suppliers Legal barriers Resistance to change

Overcoming barriers via:       

Recognize that all parties have the power to shape the nature of the relationship.

Long-term contracts Win-win approach through sharing benefits & rewards Utilize joint improvement efforts Be open in information exchanges Credible commitment to work together during difficult times Joint commitment to quality, defect-free products

39. Research with cross-functional sourcing teams revealed that teams that included suppliers as active team participants put forth greater effort, on average, than teams that did not include suppliers. Discuss why the involvement of external suppliers can positively affect a team’s effort.

Answer:       

A research study showed that supplier involved teams were rated more effective than those without suppliers.

There was greater satisfaction concerning information quality.

Suppliers were relied upon to directly support team goals.

Fewer problems were encountered when coordinating work activities.

Suppliers contributed by bringing fresh perspectives to the team.

Suppliers gained early visibility and insight into design process.

Team members reduced the time needed to evaluate supplier capabilities.

40. Why is goal setting so important to the success of the sourcing team process? What is the role of the team leader when setting team goals?

Answer: 

Goal setting provides direction and focus. Since it is: o focused on end results rather than desired activities. o used as a basis for evaluation of team performance. o served as a benchmark for assessing progress, giving feedback, and allocating performance rewards,

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 4: Supply Management Integration for Competitive Advantage

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Role of team leader is to: o establish specific performance targets. o develop team member ownership and commitment to the goals. o utilize team member expertise and experience in setting goals.

41. Relatively few individuals have the qualifications, experience, and training to immediately assume demanding sourcing team leadership positions. Do you agree or disagree with this statement? Why? Answer: Yes, agree. Leading a sourcing team requires a multiple skills. These include: leadership; communication; and process skills that are acquired by being a team member and through observation, training and experience. Formal education is less of a factor than experience when leading these teams.

42. Describe the traditional model of Buyer–seller relationships. How is the traditional model different from the collaborative model? What are the major characteristics of the collaborative model?

Answer: Traditional (adversarial, arm’s length):       

Multiple sources played off against each other Buyer takes all cost savings; supplier hides cost savings Little or no joint improvement efforts Buyer unilaterally resolves disputes Minimal or no two-way exchange of information Buyer determines response to changing marketplace conditions Buyer inspects quality at receipt

Collaborative (open):       

One or a few preferred supplies for each major item Equitable sharing of benefits between buyer and supplier Joint improvement driven by mutual interdependence Existence of conflict resolution mechanisms Open and complete exchange of information Buyer and seller work together to adapt to changing marketplace Quality is designed into the product/service

43. Describe a typical technology roadmap for a manufacturer of a smartphone e.g., Apple iPhone.

How does this affect supply management’s activities in the new-product development cycle?

Answer: Apple has historically launched the new version of its iPhone every fall. The iPhone technology roadmap extends beyond the latest version and would include all the futuristic features it seeks to incorporate in later versions. The further out in the time cycle, the less

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 4: Supply Management Integration for Competitive Advantage

accurate as these ―would like‖ features that may not be currently feasible due to the cost or technical challenges.

44. Discuss the major elements that characterize successful programs that integrate suppliers into new-product development.

Answer:      

Formalized processes for selecting items for supplier integration Using cross functional teams for supplier evaluation and selection Early visibility & supplier selection for full volume work Supplier team participation and sharing of technology Co-location with Joint training and education Confidentiality

45. What types of information can a supplier provide that are useful during new-product development?

Answer:        

Recommended technical specifications Information about their technical & scientific capabilities Capabilities of their employees Potential substitute materials and/or processes Knowledge of materials markets Estimated cost information Timing, scheduling and capacity Future technology roadmaps

46. What is the difference between a gray box and a black box approach to early supplier involvement? Under what circumstances might each approach be appropriate?

Answer: Gray box: 

Suppliers’ engineers work cooperatively with buyer’s engineers to jointly design the product.

Black box:  

Highest level of supplier involvement Suppliers are provided with functional specifications and are asked to complete all technical specifications, including materials to be used, blueprints, etc.

The gray box approach is appropriate for products where the buyer has a strong relationship of working together with the supplier and needs to expand the product line using supplier capabilities, e.g. lawn equipment where supplier can bring expertise in engines and drive trains.

The black box approach is appropriate where the buyer lacks the internal design capability, and the market is characterized by highly capable and trustworthy suppliers, e.g. name branding and company logos.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 4: Supply Management Integration for Competitive Advantage

47. What criteria are most important when considering whether a supplier should be involved in a new-product development effort?

Answer:      

Targets regarding cost, quality, and other performance criteria Timing to meet product introduction deadlines Ramp-up to meet regular production Innovation and technical capabilities Training needs Resource commitment

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 5: Purchasing and Supply Management Organization

48. What are the impacts of increasing worldwide risks on supply management, their organizations, and the need to work closely with other functions and suppliers? Why? Answer:       

Weather disruptions Technology changes Market changes Single or sole sourcing Foreign exchange fluctuations Loss of sales, profits, and market share Increased costs and duplication

49. In today’s environment, what supp/supply chain integration efforts will have the most significant impacts on company performance and why?

Answer: Integration will vary greatly from firm to firm depending on the maturity of the supply chain and purchasing functions. In general, there are a few tactics that firms can utilize to enhance integration efforts. These include:    

Co-location of buyer and supplier personnel On-site supplier representative Supplier suggestion programs Buyer supplier improvement teams

15. Define Supplier Relationship Management and discuss the Roles of the Big R and Little r’s in SRM. Answer: SRM is a structured approach to managing suppliers through both long- and short-term goals.

Research suggests that it is important to first focus on the short-term initiatives such as delivery quality and other performance metrics necessary to accomplish the work (little r’s).

The aggregation of these smaller efforts roll together into formation of the overall relationship (Big R). [return to top]

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 5: Purchasing and Supply Management Organization

TABLE OF CONTENTS Discussion Questions................................................................................................................................. 25

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 5: Purchasing and Supply Management Organization

© 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 5: Purchasing and Supply Management Organization

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

50. Do you feel that choosing an organizational design is simple? If so, explain why firms would change their supply management organization structure.

Answer: Organizational design in supply management is a complex process that involves consideration of management preferences, the internal and external environments of the firm.

It should be periodically reviewed as the conditions change. Some of these changes are listed below.      

Firm’s overall business strategy, customers and markets Changes in total purchase expenditures Changes in external marketplace risks Technology changes Changes end customer market preferences Volatility of cost changes in key materials and components

51. Discuss the two or three most important benefits to centralized purchasing authority. Justify your choices. Discuss the two most important benefits to decentralized purchasing authority. Justify your choices.

Answer: Centralized:      

Leverage purchase volumes Reduce duplication of purchasing effort Coordination of purchasing strategies and plans Coordination of company-wide purchasing systems Development of specialized expertise Meet corporate goals and manage company-wide change

Decentralized:    

Speed and responsiveness Understanding unique operational requirements New-product development support Ownership of decisions affecting purchasing

52. What are some of the factors that would influence whether a firm centralizes or decentralizes its supply management organization?

Answer:  

Firm’s overall business strategy Similarity of purchases

© 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 5: Purchasing and Supply Management Organization

 

Total purchase dollar expenditures Overall philosophy of management

53. Explain how firms moving to center-led organizational design would attain ―buy-in‖ from the business units.

Answer:     

Providing enhanced services being responsive to business unit needs Improving performance standards and measuring them consistently Improved purchasing systems that can communicate with other units Availability of specialized expertise covering a broad audience Enhanced communication with senior executives

54. Which of the center-led enablers could be utilized without expending a great deal of corporate P/SM’s resources or requiring additional personnel?

Answer: Most center-led enablers don’t require major resources unless the firm is lagging in technology deployment. The groups listed below would not require major resources.          

Strategic sourcing groups Lead division buying Business unit leaders Global sourcing councils Regional buying groups Corporate purchasing councils Corporate commodity councils Centers of excellence Shared service groups Consortiums and group purchasing organizations

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 5: Purchasing and Supply Management Organization

55. Why is a function’s placement in the organizational hierarchy important?

Answer: Higher placement on the organizational chart increases the visibility to top management. This facilitates greater respect and resources for the purchasing organization through increased status and influence. Secondly, it defines how a firm communicates and integrates decision making across the groups (coordination).

56. What factors contribute to the increasing importance of purchasing within the organizational hierarchy?

Answer:      

History of the company Impact on organizational performance Founder’s philosophy Type of industry Total spend on goods and services Type of purchased materials and services

57. Discuss the logic behind physically separating strategic and operational buyers.

Answer:     

Managing day-to-day operations is quite different from managing longer-term more strategic responsibilities.

Requires different skill sets.

When combined, strategic responsibilities take second place to the immediate needs of operational issues and are often ignored.

Management must clearly emphasize that the groups don’t differ in importance but tasks.

Most often, strategic groups are located at headquarters and operational groups at buying locations.

58. Discuss the role of consortiums and Group Purchasing Organizations.

Answer:   

They provide additional buying leverage through spend category expertise and contract management skills.

They are enabling mechanisms for center-led or hybrid organizations.

Participants utilize collaborative efforts of member firms to enhance spend management, reduce costs, and allow sharing of best practices through their member network.

59. You have just recently been appointed the company’s CPO. You will oversee a company with worldwide operations located at 55 buying locations. Your organization has five major business groups involved with the design and manufacture of health care products (e.g., precision surgical tools, blood testing devices, and the like). Historically, purchasing has operated in a very decentralized manner. Design an organizational structure that allows you to enact value adding strategies. Describe the reporting structure, the physical placement of personnel, the placement of purchasing authority, and the coordination of activities with other functional groups.

© 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 5: Purchasing and Supply Management Organization

Answer: A center-lead structure would enable the firm to consolidate similar purchases such as MRO, laboratory supplies, testing instruments etc. There are several center lead enablers that could be selected for the new structure including: 1) Strategic Sourcing Groups; 2) Corporate Commodity Councils; 3) Centers of Excellence and 4) Shared Services Group. Most purchasing personnel would still be located within the major business groups and would still purchase their assigned commodities; however, they would now participate in the formation of more corporate wide buying agreements that ultimately save their firm money.

60. Discuss the impact that AI and robotics will have on: (1) purchasing organizational design and (2) purchasing’s job scope.

Answer: From an overall perspective, organizational design will still be the responsibility of upper management and the Chief Purchasing Officer (CPO) who determine the correct design based on their assessment of the company’s strategic goals and objectives to optimize their purchase expenditures using these newer tools. The impact will be more directly felt in job scope.

There will be fewer people needed, and these people will have increased responsibilities.

More specific impacts are listed below:  Improved transparency of cross-industrial corporate networks across the supply chain  AI and robotics would replace humans for all information processing jobs and most office jobs.  AI and robotics would perform all operational and tactical purchasing tasks.  Allow purchasers to focus on more strategic activities increasing job scope.  Allow reliance on systems capability to enable enhanced collaboration and further improve the efficient and effective management of the flow of goods information and processes from suppliers to final customers.  All members of the supply chain can access inventory levels, orders, and due dates to improve their internal operations and customer service.  Customers will have visibility into the shipments of a key supplier.  The ability to bring together a firm’s expertise in the form of a virtual team to address a problem, provide alternatives, recommend solutions, and then disband.  Coexistence between humans and machines leading to more diversified roles, tasks, and responsibilities.  AI can audit committees, cross-functional teams, and cost analysis.

61. Why would you believe that the importance of P/SM diminishes when a firm organizes under a supply chain management structure?

Answer:  

Consolidation of all activities under SCM means the purchasing function is now at a lower level.

Further purchasing must now fight for resources with the other supply chain functions

62. Explain how some of the popular social networking software (e.g., Facebook, LinkedIn, and so forth) could be used in purchasing and indicate the effect on future organizational structures?

© 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 6: Category Strategy Development

Answer:    

Business professionals can develop a network of contacts with similar interests and join affinity groups.

Purchasers can study the background and interests of sellers and suppliers before meeting with them.

As a tool for negotiations since having more personal information helps in developing a negotiation strategy.

Free flow of information between organizations allows for comparisons between firms regarding job responsibilities & authority.

63. What is the logic behind co-locating purchasing personnel with internal customers?

Answer:     

Increased speed and accuracy of communication Greater understanding of user needs Ready support of new-product development activities Responsiveness to needs of the internal customer Operational support and follow-up are consistent and timely.

[return to top]

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 6: Category Strategy Development

TABLE OF CONTENTS Discussion Questions................................................................................................................................. 30

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 6: Category Strategy Development

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

64. Select a category that you believe might be chosen for a strategic category analysis in the industries listed next. Describe the factors impacting each commodity, using a Porter’s Five Forces analysis (described earlier in this chapter). Justify why you believe the category is strategic to that industry, and the approach to be used in developing a category strategy. a. b. c. d. e. f. g. h. i. j.

Oil (West Texas intermediate) versus gasoline (discuss differential) Metals Chemicals Plastic resins Shipping Wood products and other production materials Aeronautical equipment Machine tools Telecommunications Paper Answer: Answers will vary by student. Some examples include semiconductors, steel, beef, and other critical commodities that would be critical to the semiconductor, automotive, and food and beverage industries.

65. Why has supply management traditionally not been involved in the corporate strategic planning function?

Answer: Purchasing has historically been considered a largely clerical function and a necessary cost (e.g., a ―necessary evil‖) not adding much value. Additionally, supply management was, traditionally, largely focused on price.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 6: Category Strategy Development

66. Explain the differences between category strategy development and strategic sourcing. How do these differences translate into different types of processes and activities required to produce an outcome in each case?

Answer: 



Category strategies derive their direction from business unit and corporate-level objectives and specify how the group tasked with developing that strategy will achieve the goals that, in turn, will support supply management, business unit, and corporate goals Strategic sourcing is the implementation of category strategies and often a one-time event that is focused primarily on leveraging to drive down costs

67. Describe a set of supply management goals that might be aligned with the following corporate objective made by an automotive manufacturer: ―To be the number one in customer satisfaction.‖ Answer: Answers will vary by student.

68. Describe where you think the following categories—paper clips, machine tools, castings, personal computers, fuel, computer chips, printers, Styrofoam cups, paper, custom-designed networks— might fall within the portfolio matrix. Under what circumstances might one of these items fall into more than one quadrant of the matrix, or evolve from one quadrant to another?

Answer: It would be interesting to take these different categories, and put them onto a portfolio matrix, which might include the following:         

Paper Clips – Routine Machine tools – Bottleneck Castings – Leverage Personal Computers – Leverage Fuel – Leverage Semiconductor chips – Strategic Styrofoam cups – Routine Paper – Routine Networks - Strategic

69. Under what conditions might you consider single sourcing an item in the leveraging category of the portfolio matrix?

Answer: One supplier offers higher quality, better service, or greater responsiveness and is considered a preferred supplier 70. When conducting research, what are some advantages and disadvantages of the different types of information you might obtain from the Internet? Which types of Internet sites are likely to be more reliable as compared with personal interviews?

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 6: Category Strategy Development

Answer: Advantages: 

Generates many leads rapidly

Disadvantages:   

Credibility of information Requires triangulation of various sources Leads must be verified or confirmed

Types of sites:   

Independent third-part sites Trade associations Consultants

71. Why is it important to establish a document explaining the category strategy and share it with others? What are the possible consequences of not doing so?

Answer:      

To engage stakeholders and gain their buy-in, especially senior leadership Provide details to those impacted by the strategy Acquire the necessary resources Validate the savings or contribution to other objectives Sustainability of the initiative Consequence of not doing so – strategy becomes rigid and cannot adapt the changing market and supply chain conditions

72. Why must organizations develop suppliers? Is supplier development a long-term trend or just a fad? Explain.

Answer:     

Continuous improvement requires improving consistently and constantly; today’s supplier performance is likely to be inadequate tomorrow.

To gain supplier commitment to cost reduction and performance improvement The supplier may not have the ability to improve without the buyer’s assistance.

The buyer may need a new capability that current suppliers do not have.

Supplier development should be a long-term trend.

73. Supply-base optimization must occur before long-term agreements can be put into place. What are the implications of this statement?

Answer:   

Optimization is the process of determining the appropriate number and mix of suppliers to maintain and generally refers to reducing the overall number of suppliers.

Not all suppliers are created equal and should not be treated as such.

It does not make much sense to have long-term agreements with all suppliers.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 6: Category Strategy Development

 

The buyer must segment its suppliers into various categories; some categories should have long-term agreements, while others should not.

Lesser-performing suppliers should be taken out of the supply base so that long-term agreements can be negotiated with more strategic ones.

74. How long do you believe it takes a company to move from a Stage 1 phase to a Stage 4 phase of supply management strategy development? In providing your response, consider all of the changes that must take place.

Answer: Answers will vary by student but should include a discussion of the difficulty of changing management.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 7: Supplier Evaluation and Selection

75. Provide a list of companies that, based on your reading of recent articles in the popular press, fit into the category of Stage 1 companies. What companies can you think of that might fall into the category of Stage 3 or 4? Provide some justification for your lists.

Answer: Answers will vary by student. Some of the most advanced companies might include Apple, Ford, Microsoft, and Honeywell.

76. Some companies have begun to bring production from low-cost countries back to North America and specifically Mexico. What are some possible explanations for this shift? Think about the TCO associated with using a low-cost country.

Answer:       

Higher transportation costs Rising fuel costs Duties and tariffs Trade wars Long lead times leading to lesser responsiveness Greater uncertainty leading to higher inventories Rising labor costs in low-cost countries

77. What do you think are the reasons that so few companies are classified as Stage 4 companies? Do you think this is likely to change?

Answer: It is difficult to make all of the changes necessary to be considered Stage 4 including:   

Developing global supplier capabilities Developing full-service suppliers Adopting a systems thinking perspective

It takes a great amount of time, resources, and effort to reach Stage 4. [return to top]

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 7: Supplier Evaluation and Selection

TABLE OF CONTENTS Discussion Questions................................................................................................................................. 35

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 7: Supplier Evaluation and Selection

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

78. Why do organizations commit the resources and time to evaluate suppliers before making a supplier selection decision?

Answer:   

Suppliers of goods and services have a significant impact on the buyers’ products and services in terms of cost, quality, delivery and serviceability.

Supplier’s capabilities, resources and capacities must be identified and evaluated to assure supply reliability.

The number of suppliers to be qualified and used is an important decision. If fewer suppliers are selected, then disruption risks increase, so this smaller supply base needs to be managed closely.

79. Discuss why purchasers have both distributors and manufacturers in their supply base.

Answer: 

   

First, selection criteria differ between distributors and manufacturers and include: o Size of the purchase o Manufacturer’s policies regarding direct sales o Storage space available at the purchaser’s facility o Extent of services required Generally, the lowest unit price will be available from the manufacturer.

As an intermediary, a distributor buys from a manufacturer and marks up the price to make a profit Many manufacturers cannot handle the sheer volume of transactions required to sell directly and, therefore, chose to sell most of their volume to distributors.

Buyers may require the higher levels of service that a distributor can provide.

© 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 7: Supplier Evaluation and Selection

80. Discuss the various sources of information buyers can utilize when seeking potential sources of supply.

Answer:           

Current supplies Sales representatives Internet searches and social media Informational databases Organizational knowledge Trade journals Trade directories Trade shows Professional associations and published information Internal sources Supplier-provided information

81. Which of the seven stages in the supplier evaluation and selection process do you feel are the most challenging and why?

Answer: This is highly dependent on the specific item the supply manager is sourcing. Early in the process stages two & three are challenging, especially if the internal customer is not flexible regarding the specifications (Stage two). Restrictive specifications limit the suppliers in the market making stage three challenging. When dealing with a sole source (only source the firm will buy from), stage seven becomes challenging as the supplier will have the power and seek to impose their will on the buyer. A good exercise is to ask students to apply the 7 step model to their personal buying experiences. Such as shopping for food, clothes, a bicycle etc.

It is an interesting way to bring the model to their life.

82. What are some possible indicators on a supplier visit that might determine whether the managers in a company are forward looking and/or whether the company can become a best-in-class supplier?

Answer: There are several indicators that the firm is a high-quality source capable of becoming bestin-class. Below are a few:        

Dollars and percent of budget devoted to research and development Dollars budgeted and frequency of Professional development activities and employee training Regular maintenance and repair of equipment Age and modernity of capital equipment Use of technology to supplement operations Existence of technology roadmaps Quality function’s position in the organization shows its relative value.

Quality certifications such as ISO 9000 & ISO 14000.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 7: Supplier Evaluation and Selection

83. Discuss the pros and cons of sole, single, and multiple sourcing and the various risks associated with each of these buying strategies.

Answer: 





Sole source o Pro: Supplier has unique capabilities, patents, licenses, processes, tooling, access to materials, etc. o Con: Supplier can hold buyer hostage. o Con: Sole source is a function of user preferences and reluctance to consider other sources. o Con: Buyer will pay higher prices and has little leverage in negotiations.

Single source o Pro: Buyer has optimum leverage and power over the supplier. o Pro: Buyer purposefully chooses to use only one supplier. o Pro: Ability to develop closer relationships with fewer suppliers. o Pro: Development of value-adding programs, such as supplier stocking, process improvement, etc. o Pro: Buyer still has options to shift to another supplier given sufficient time. o Con: Buyer increases risks by limiting options. If the single supplier goes bankrupt, suffers quality and delivery lapses, and/or stops making the product/service finding another supplier quickly could be challenging.

Multiple sourcing o Pro: Improved assurance of supply o Pro: Check against price increases o Pro: Active competition that motivates suppliers to perform effectively o Pro: Backup suppliers are available to handle increased demand. o Con: Price leverage and power are less compared to a single supplier.

84. Discuss the reasons why suppliers are sometimes reluctant to share cost information with buyers, particularly during the early stage of a buyer–seller relationship.

Answer:    

The supplier could be a competitor to the buyer.

May indicate a supplier that is in poor financial health.

The supplier may not have a detailed understanding of its own costs.

The supplier may view cost data as proprietary.

85. Assume you are the chief purchasing officer (CPO) at a manufacturer of robotics devices; develop a plan to manage the risks in your supply base.

Answer: Depending on the degree of outsourcing, robotics productions will require the purchase of complex and very technical items. As a result, the purchaser must identify the key items which are cost drivers and develop strategies to control costs while ensuring supply. Since other countries also have robotic capabilities, it may also require sourcing globally. Lastly, working with R&D on newer robotic designs and supplying parts to test these new designs will involve close working relationships with select suppliers.

© 2026 Cengage Learning, Inc. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 7: Supplier Evaluation and Selection

86. What are the issues or questions the purchaser needs to address when evaluating and selecting diverse suppliers?

Answer: Diverse suppliers will usually be small businesses who are trying to increase sales and secure their business future by working with well-established customers, many of whom have diversity-based business goals. Purchasers will need to do their due diligence to ensure the selected supplier can meet the buying needs of their firm. Supplier evaluation will include:      

Financial stability Capacity levels and the ability to ramp up volumes Needed resources, especially in the areas of cash flow and technology Buyer provided training to increase skills Supplier’s customer base and safeguards against becoming too dependent on the buyer Providing direct assistance to develop the supplier into a capable supplier.

87. Define sustainability and discuss why it is becoming more important in supplier selection and evaluation.

Answer:    

Ensures a better quality of life now and for generations to come and encompasses both social and environmental responsibility Buyer’s customers, shareholders, and stakeholders are beginning to demand it.

Climate change and carbon footprint are tracked more closely by firms to measure their commitment to sustainability.

Suppliers’ use of renewable energy and other renewables in their processes should boost their standing with the buying firm and increase their chances of being awarded business.

88. Go to at least three of the financial websites (e.g., Yahoo, Google, Morningstar) listed under the Financial Stability section of this chapter and discuss their strengths and weaknesses.

Answer:     

SEC’s 10K reports Dun & Bradstreet Standard & Poor’s Robert Morris Financials Supplier provided audited statements

89. What specific technologies will allow the purchaser to make better and faster source selection decisions?

Answer:     

Process mapping software: Maps the current supplier evaluation and selection process.

Source to Pay (S2P) provides data on patterns e.g. IBM analyzes past travel.

Data warehouses to access potential supplier and performance histories Third party support such as D&B Commodity and co-located personnel communicating via Mobile devices and the Internet

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 7: Supplier Evaluation and Selection



E-procurement suites from IBM and Ariba cut selection and evaluation time

90. Why is it important to discuss promptly the results of a supplier visit or survey with the supplier?

If a supplier has an area needing improvement, under what conditions would supplier development be appropriate?

Answer:   

The supplier can be apprised of and undertake changes to prevent future problems.

Act quickly on corrective actions on existing problems and prevent recurrence.

Supplier development is required when the supplier lacks the expertise or the people or financial capabilities to make necessary changes. This requires cooperation and agreement by the supplier to allow the buyer to assist. Thus, a basic level of trust must exist, and the buyer must be willing to invest both people and dollars into making the supplier compliant to the needs of the buying organization.

91. Discuss a situation in which a purchaser might select a supplier that is experiencing financial difficulties.

Answer:    

If the supplier is a sole source and the buyer needs time to develop an alternative.

The supplier has unique capabilities, intellectual properties, or licensed technology not readily available elsewhere, so that using that supplier contributes to process efficiency.

The supplier is diverse, and the buyer is committed to assisting the supplier’s return to financial health A one-time spot buy where the buyer has an immediate need and knows the supplier has the product.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 8: Supplier Quality Management

92. Why is it important to reduce supplier evaluation and selection time? What three methods do you think have the greatest impact on reducing supplier selection time?

Answer: 



Competitive and customer pressures are forcing reductions in the time it takes to perform a task or carry out a process. Thus, purchasing must be proactive and anticipate requirements as opposed to being reactive.

Three key methods to do this are: 1) maintain good transparent relationships with internal customers. 2) increase understanding of internal and external customers’ current and future needs. 3) get a baseline by mapping the current process. 4) Utilize the data on current technology platforms e.g. ERP, S2P systems to analyze buying patterns to better understand future buying requirements and 5) Data lists that cross-list high performing suppliers and the commodities they can supply to enable quick response to sourcing requests that have short lead-times.

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Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 8: Supplier Quality Management

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 8: Supplier Quality Management

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

93. Why should a buyer be concerned with monitoring and managing supplier quality performance?

Answer: 

   

Not doing so consistently can result in long-term customer satisfaction, lower profitability, reduced market share, and increased costs, as well as negative public relations.

Competitive necessity to assess actual performance to make sure it aligns with expected supplier performance standards On average, suppliers represent 55 percent of a buyer’s cost of goods sold.

Importance of continuous improvement Increasing outsourced purchase requirements

94. Discuss the following statement: Supply management not only buys parts or services from suppliers—it often buys a supplier’s current and future performance capability.

Answer:  

Suppliers now contribute more to the buyer – technology, product design, distribution, market insight, cost reduction ideas, etc.

Textbook definition of quality: The ability to meet or exceed current and future customer expectations or requirements within critical performance areas on a consistent basis.

95. Do all suppliers have an equal impact on product quality? Discuss the conditions under which one supplier may have a greater impact on a firm’s final product quality as compared to another supplier.

Answer:  Custom products vs. commodities  Sole or single sourcing vs. multiple sourcing  Level of spend  Size of the supplier 96. Why is it important for a buyer to be a good customer? How can a buyer become a good customer to a supplier?

Answer:      

Supplier will be more responsive to the buyer’s needs.

Pay invoices in a timely manner.

Minimize engineering change orders and specification changes.

Minimize order quantity and lead time changes.

Provide visibility to future production schedules.

Provide early visibility to new product development.

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 8: Supplier Quality Management

 

Provide clear understanding and communication of expectations Provide routine feedback on supplier performance.

97. How can ESDI efforts contribute to higher levels of product quality?

Answer:  

Utilize supplier expertise in product and process technology and design.

Reduce lead times for new-product introductions.

98. Discuss the benefits accruing to a supplier for achieving ISO 9001 registration and/or ISO 14001 certification.

Answer:    

Cost reduction and improved profitability Greater knowledge of process performance Helps supplier improve quality, efficiency, and/or sustainability performance Additional business from the buyer and from other customers

99. Some supply management experts argue that suppliers should not receive rewards for doing something that is already expected (e.g., continuously improving quality). Do you agree with this position? What are some common examples of rewards that a supplier might expect to receive?

Answer: Answers will vary by student. Types of rewards include:  

Sharing of joint cost savings Additional future business of current and other product lines

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 8: Supplier Quality Management

100.

Discuss the benefits to a buying company of certifying its suppliers. Describe the benefits to a supplier of being certified—to the buyer and to the supplier.

Answer: Buyer     101.

Immediate confirmation that a supplier has demonstrated the ability to meet certification standards Does not have to create its own supplier certification and audit system Supplier pays to become certified by third party.

Gains insight into supplier’s quality management system Why did many TQM efforts in North America not succeed as expected during the 1980s?

Answer:      102.

Expected results too quickly; ―fad of the month‖.

Results actually achieved were less than expected.

Results require a long time and considerable effort to achieve.

May not see actual results in the short-term.

Lack of managerial and resource commitment to the process of improvement What are the major differences between TQM and Six Sigma quality approaches?

Answer: 



TQM (a philosophy) o Define quality in terms of customers and their requirements. o Pursue quality at the source. o Stress objective rather than subjective analysis. o Emphasize prevention rather than detection of defects. o Focus on process rather than output. o Strive for zero defects. o Establish continuous improvement as a way of life. o Make quality everyone’s responsibility.

Six Sigma (implementation of quality principles) o Updated version of TQM o Reduction of complexity o Focus on quantitative results to the bottom line. o Uses a disciplined application of statistical tools for management decision making and problem-solving o Creation of a sustainable infrastructure that positively affects organizational culture o Uses a set of proven methods and trains individuals (e.g., Black Belts) to apply them. o Seeks near perfection – three point four defects per million opportunities.

103.

What principles of TQM does a well-developed supplier evaluation and selection process satisfy?

Answer:

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 8: Supplier Quality Management

    104.

Pursue quality at the source Emphasize prevention rather than detection of defects Focus on process rather than output Strive for zero defects What principles of TQM do supplier measurement systems satisfy?

Answer:     

Define quality in terms of customers and their requirements.

Pursue quality at the source.

Stress objective rather than subjective analysis.

Strive for zero defects.

Establish continuous improvement as a way of life.

Discuss the role of Deming’s Fourteen Points in managing supplier quality.

105.

Answer:    106.

Acts as a philosophy for achieving excellence and customer satisfaction.

Applicable to manufacturing and service industries Organizations cannot pick and choose which points they want to implement; all are important and complementary.

Describe the various classifications of the cost of quality.

Answer: 





Appraisal costs – direct, out-of-pocket costs of measuring quality o Laboratory testing of prototypes and samples o Production inspection o Supplier quality audits o Incoming material inspections o All forms of product monitoring Failure costs – internal (occur before product is provided to the customer; external occur following production or after the customer receives the product) o Internal  Process troubleshooting  Reinspection following detection of a defect  Production downtime caused by defects  Scrap and process waste o External  Warranty costs  Replacement of defective products to customers  Liability lawsuits  Loss of customer goodwill Prevention costs – when processes are designed or modified to prevent defects from ever occurring o Design for quality o Quality planning

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 9: Supplier Management and Development: Creating a World-Class Supply Base

o o o o 107.

Equipment calibration Quality training Development of a quality manual Maintenance of quality management systems

How can a buyer utilize ISO 14001 to improve supplier environmental performance?

Answer: ISO 14001 is a globally recognized standard that is indicative that an organization is pursuing sustainable supply chain operations, and is seeking to minimize waste, reduce landfill, reduce carbon emissions, and improving processes to reduce environmental impacts. This standard can be used as an element in a supplier performance management systems as an indicator of strong environmental performance.

[return to top]

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 9: Supplier Management and Development: Creating a World-Class Supply Base

TABLE OF CONTENTS Discussion Questions................................................................................................................................. 46

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 9: Supplier Management and Development: Creating a World-Class Supply Base

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

108.

Provide reasons why most firms do not have an adequate supplier measurement system.

Answer:   

They don’t see an immediate payback for the resources and effort invested.

Cost accounting systems don’t always do a good job of delineating relevant costs.

They rely solely on price and delivery performance data.

109.

Your manager at the medium-sized company where you work has just called you in and asked you to explain why the company should spend its limited financial resources to develop a supplier measurement system. What do you tell them?

Answer: Answers will vary by student. In general, it is important to note that suppliers have a major impact on innovation and company profitability.

110.

Why is it critical to have a smaller supply base before committing to a supplier management and development program?

Answer:  

It is difficult to manage many suppliers as efficiently as a small core group of suppliers.

It is challenging to pursue progressive supply management strategies with too many suppliers.  A large supply base means the duplication of a wide range of supply management activities, adding to acquisition cost without a corresponding increase in value added.  Some suppliers are unable or unwilling to improve their performance.  Eliminating poorer performing suppliers automatically improves supply base performance.  The remaining suppliers will be more highly motivated to improve.

111.

Discuss the advantages and disadvantages of an optimized supply base. How can a buyer overcome the disadvantages?

Answer: 

Advantages: o Real improvement in cost, quality, delivery, and information sharing o The remaining suppliers are usually more capable. o Buying from world-class suppliers o Use of full-service suppliers o Reduction of supply base risk o Lower supply base administrative costs o Lower total product cost o Ability to pursue complex supply management strategies

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 9: Supplier Management and Development: Creating a World-Class Supply Base





112.

Disadvantages: o Supplier dependency o Absence of competition o Supply disruption o Overaggressive supply reduction How a buyer can overcome disadvantages: o Use of careful supplier selection and development of equitable contracts o Select suppliers with multiple capabilities. o Use of secondary suppliers o Select suppliers with available capacity.

Discuss the logic behind maintaining multiple suppliers for each purchased item.

Answer:    113.

Have available backup.

Create a more competitive supply base.

Reduce supply chain availability risk.

Discuss the logic behind maintaining a reduced number of suppliers for each item.

Answer:    114.

Reduced quality variability of each purchased item due to different materials and processes The supplier is more willing to invest in capital improvements and employee development.

Working with higher performing, more capable suppliers results in better quality and delivery performance.

What is a full-service supplier? What are the benefits of using full-service suppliers?

Answer:  

A full-service supplier is larger than average and more capable of offering a broader range of value-adding services.

Benefits: o Access to the supplier’s engineering, research and development, design, testing, production, service, and tooling capabilities o The supplier may manage an entire system of components, activities, and services, as well as manage its own supply base. o The supplier may perform complete design and build work

115.

Why is the Honda approach to supplier development and improvement not widespread among U.S. firms?

Answer:    

Adversarial buyer-supplier relationships Unwillingness to share proprietary information No immediate or observable benefit to buyer Takes time to build trust

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 9: Supplier Management and Development: Creating a World-Class Supply Base



Suppliers may not have the right attitude to accept help from customers

116.

Many companies are now using the World Wide Web to share performance information with suppliers, thereby allowing suppliers to compare their performance to other suppliers within the buying company’s supply base. Discuss the benefits of this strategy to both buyers and suppliers.

Answer:   

Real-time, day-to-day access to performance information Joint ownership of problems Faster response to problem recognition and resolution

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 9: Supplier Management and Development: Creating a World-Class Supply Base

117.

Discuss the different types of supplier development and support that a firm can offer.

Which are the most common? Why? Answer:  



Direct-involvement (hands-on) o Buyer personnel directly assist supplier personnel Incentives and rewards (the carrot) o Encourage suppliers to improve with future business or annual award recognition Warnings and penalties (the stick) o Pull back current business or withhold future business

118.

Research has revealed that no single approach to supplier development is effective in achieving performance goals. Rather, a mix of the carrot, stick, and hands-on approaches seems to work best. Explain why you think this is the case.

Answer: Answers will vary by student.

119.

A common statement made in some supply management organizations is, ―We can’t be spending money on supplier development—we’re not in business to train suppliers and do their job for them!‖ What type of barrier does this statement represent? How would you respond to such a statement?

Answer: Answers will vary by student.

120.

Of the barriers to supplier development mentioned in this chapter, which ones, in your opinion, are the most difficult to overcome?

Answer: Answers will vary by student.

121.

An automotive executive once made the following statement: ―Only about one in five supplier development efforts are truly 100 percent successful.‖ Why do you think this is the case?

What makes supplier development such a challenging effort for the buyer? For the supplier?

Answer: 

Once buyer personnel leave the supplier’s premises, it is not unusual for the supplier to revert to its pre-supplier development levels of performance without reinforcement (e.g., out-of-sight-out-of-mind).  Managerial attitude is a common and difficult barrier to overcome.

122.

Discuss the reasons why top management commitment is essential to the success of supplier management and development.

Answer: Top management controls the resources and reward system necessary to reinforce change.

123.

What are the advantages of calculating an SPI? What are the challenges associated with developing a measurement system that uses SPI?

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 9: Supplier Management and Development: Creating a World-Class Supply Base

Answer: 



124.

Advantages: o Based on the true cost of doing business with a given supplier. o Adjusts purchase price to allow for nonconformance cost.

Challenges: o Hard to define total cost o Identifying and recording the appropriate costs that are incurred whenever a supplier fails to perform as expected o Many cost accounting systems are not designed to identify and capture relevant costs. o May provide an incomplete or misleading assessment of supplier performance.

What is the role of the Q adjustment factor in the SPI calculation?

Answer:  

The regular SPI system has a bias toward higher-dollar volume suppliers.

The Q adjustment factor allows an ―apples-to-apples‖ comparison independent of volume.

125.

Describe the major sources of supply base risk. What are some of the SCRM tools available to avoid or mitigate supply chain risk?

Answer: 



   

126.

Political risk – consists of such factors as country stability, regional stability, party and governmental stability, levels of corruption, differences in contract law and intellectual property rights, elections, military actions, civil disturbances, terrorism, trade balance issues, trade wars, and duties and tariffs.

Market risk – number of buyers and suppliers competing for the same goods, shorter product life cycles, threat of emerging and disruptive technologies, and the ability to protect intellectual properties.

Sourcing risk – strong correlation between longer supply pipeline and exposure to risk, need to create redundancy and flexibility, and level of supplier competition.

Financial risk – inventory carrying costs, higher transportation costs, currency exchange rate fluctuations, hard vs. soft currencies, and choice of incoterms.

Supplier company risk – current financial stability and future viability, hard to get an accurate picture of a supplier’s operations and capabilities, and lengthy supply chains.

Tools: o Inventory o Multiple sourcing o Use of third-party intermediaries o Scenario analysis o Currency hedging and options o Insurance o Automated visibility and early warning systems Why is supply chain fraud difficult to recognize and manage?

Answer:

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 10: Worldwide Sourcing

     

Perpetrators work hard to hide their fraudulent activities which are usually illegal.

Victim companies are hesitant to publicize that they were victimized.

Only accounting has the expertise to deal with fraud of all kinds, it is not on supply management’s radar.

Its causes and effects are not well-understood.

Complex global supply chains are relatively invisible to buyers, especially Tier 2 suppliers and beyond.

Detection systems are generally inadequate.

127.

Describe why companies are engaging in sustainability and social responsibility practices.

Answer:  Customers, shareholders, and other stakeholders are demanding more accountability.  Offers more positive public relations for companies. [return to top]

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 10: Worldwide Sourcing

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 10: Worldwide Sourcing

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

128.

Discuss the positive and negative effects of globalization and nationalism on the U.S. What is the impact of each of these philosophies on worldwide sourcing?

Answer: Overall, the degree of globalization is influenced by nations’ actions and beliefs. For example, the U.S. and China engaging in a trade war could lessen globalization. Conversely, lowering tariffs and taking a more open approach to global trade increases globalization. The effects of these actions take years to assess and evaluate. For example, proponents of tariffs believe it fosters domestic production leading to more jobs in that country and hence to economic prosperity. Proponents of free trade argue that countries should specialize in goods and services that match their distinctive competence and acquire the rest from other countries.

The alternatives to worldwide sourcing are few in a highly complex and intertwined world.

Once facilities and expertise are established, they become difficult to move. It can be done but it takes time. Additionally, moving from low-cost labor regions to developed requires automation to compete as the higher labor rates make product prices higher.

129.

China, India, and Eastern Europe, have been sourcing hot spots. Explain why and discuss any problems you see in sourcing from these countries.

Answer: They are sourcing hotspots due to their attractive labor pool, low wages and relatively stable governments who actively invest in infrastructure.

Problems include:            

Inability to develop innovative solutions Poor infrastructure needed to get goods to ports of export Increased risk of loss damage and additional logistics costs Loss of flexibility to meet changes in customer demand Additional coordination, administrative and travel costs Longer lead times equate to larger inventories Duties and tariffs Quality levels and consistency of quality Cultural issues Protection of intellectual properties Exchange rate fluctuations Worker skill levels and worker demands for higher wage rates

130.

What factors are making reshoring and nearshoring more attractive as part of an organization’s worldwide sourcing strategies?

Answer:

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 10: Worldwide Sourcing

         131.

Less favorable price savings due the changing economics in low-cost countries such as rising wage rates, lack of skilled workers etc.

Enhanced and more reliable quality Fewer cultural issues to deal with Lower/no tariffs through USMCA (US Mexico Canada Trade Agreement) Recent tariff wars with Canada and Mexico increase reshoring attractiveness Shorter lead times & lower logistics costs Increased schedule adaptability and flexibility due to schedule uncertainty Increased assurances of product safety Attractiveness of items that have a high shipping cost to value ratio; great product variety; and are marketed to premium priced markets.

What are the most important reasons for pursuing worldwide sourcing today?

Answer:       

Cost/price benefits Access to product and process technology Higher quality Access to the only source available particularly raw materials such as rare earth minerals Introducing competition to domestic suppliers React to sourcing efforts of competitors who use global sourcing to lower their product costs Establish a market presence in another country

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 10: Worldwide Sourcing

132.

What are the advantages of establishing an IPO? What services do these offices provide?

Answer: 

Advantages: o o o o o



Mix of home country and offshore employees Can support the buyer’s operations worldwide Facilitates a higher-level of global sourcing Provides greater operational support to domestic buying locations Can market their global sourcing activities to other companies to expand revenue opportunities

Services: o o o o o o o o o o o o

Identify potential suppliers.

Solicit quotes and proposals.

Expedite and trace shipments.

Negotiate supply contracts.

Obtain product samples.

Manage technical and commercial concerns.

Represent the buying firm to suppliers.

Manage countertrade requirements.

Perform supplier site visits.

Facilitate import and export requirements.

Resolve quality and delivery performance problems.

Measure supplier performance.

133.

Discuss the reasons why a firm would use a third-party external agent for worldwide sourcing.

Answer:           

Finding qualified sources Performing product quality audits Evaluating suppliers Negotiating contracts Managing logistics Inspecting shipments Expediting Performing duty classifications Act as purchasing representative Developing information Advise on local business issues, customs, procedures, etc.

134.

Discuss some of the sources of information a buyer can use to identify potential offshore sources of supply.

Answer: 

Internet websites

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 10: Worldwide Sourcing

       135.

U.S. International Trade Data (U.S. Census Bureau) Various subscription-based services LinkedIn groups Worldwide sourcing directories Trade shows Third-party intermediaries Consulates and embassies Explain the differences between international purchasing and global sourcing.

Answer: 





At level two, international purchasing is usually reactive and not coordinated across business units, and international purchasing is performed on an ―as needed‖ basis, at level three, firms integrate international purchasing into their strategic sourcing and realize significant improvements. At level three firms still lack coordination across business units and relationships are more transactional.

Global sourcing at level four represents a coordination of sourcing strategies across worldwide locations. Level five is the penultimate in which sourcing efforts focus on coordination of common items, designs, processes, and technologies with global suppliers.

In summary, international purchasing is reactive, transactional, and conducted independently by each business unit. Global Sourcing is proactive, strategic, and managed across business units.

136.

How do outsourcing, nearshoring, and offshoring, and reshoring differ? What characteristics determine if a firm chooses to offshore and/or nearshore?

Answer: 



  

Outsourcing: o Contracting with independent suppliers outside the organization (foreign or domestic) to provide products or services that were performed inside the organization Offshoring: o Contracting with independent suppliers located outside the geographic boundaries of the U.S. for goods and services Nearshoring: o Relocating sourcing to countries geographically closer to the U.S. Re-shoring: o Bringing back sourcing to the U.S. Characteristics: o Where to locate a supply base for maximum effectiveness o Changing cost dynamics o Trade wars, duties, and tariffs o Presence of free trade agreements o Technology

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137.

Many U.S. firms begin worldwide sourcing on a reactive basis. What does this mean?

What factors might cause a firm to shift from reactive worldwide sourcing to a proactive approach to worldwide sourcing?

Answer: Reactive is responding to changing conditions on a random basis by reacting to change(s) in the environment. If this transactional approach produces savings a quality improvement, the firm becomes more proactive in looking at the world as a source to purchase its products and services. This proactiveness is evidenced by global sourcing councils, international purchasing offices etc.

138.

What do you feel are the biggest obstacles to global sourcing?

Answer: 



Factors: o A defined process to support global sourcing o Centrally coordinated and centrally led decision making organization structure to support global sourcing o Sourcing decisions made at the local level and decentralized control exists over operations o Lack of real-time communication tools across the organization o Low degree of information sharing with suppliers o Scarcity of critical resources people and systems o Sourcing and contracting systems are manual o Lack of a global corporate sourcing group or an international purchasing office to support global sourcing Answers will vary by student

139.

Refer to the barriers to worldwide sourcing that confront firms. For each barrier, discuss one or more ways that a firm can overcome the barrier.

Answer: 



Barriers: o Lack of knowledge and skills concerning global sourcing o Resistance to change o Longer lead times o Different business customs, language, and culture o Currency fluctuations o Increased supply risk Overcoming barriers: o Education and training o Publicizing success stories o Deploying technology o Utilize suppliers with U.S.-based support personnel o Measurement and reward systems o Use of third-party or external agents

13. Briefly evaluate forms of countertrade highlighting their use, and flexibility?

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Answer: Forms of countertrades and brief description:    



Barter -oldest form least used today Counter-purchase- often involves unrelated goods that the firm can’t use and must be remarketed through a third party introducing complexity and cost into the transaction Offset- similar to the couterpurchase but involves goods the firm can use offering the purchaser greater flexibility.

Buy-back-physically building a plant or providing services, equipment or technology to support the plant. Less flexible as the firm must take some of output and must hope it can market that output.

Switch trading- using a third-party to sell counterpurchase credits. The firm doesn’t want the goods so this adds cost and complexity to the deal.

14. Discuss how FTZs can improve on the advantages gained from worldwide sourcing. Next, find the FTZ closest to you.

Answer:  

FTZs are considered to be outside of the Customs territory of the U.S. for purposes on payment of duty.

Advantages: o Duty exemption o Duty deferral o Inverted tariffs o Streamlined Customs procedures o Reduction of state and/or local inventory taxes

Closest FTZ will vary by student location, but can be found at the following url https://www.trade.gov/foreign-trade-zones-board [return to top]

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Instructor Manual: Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 11: Strategic Cost Management

DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

140.

Why should a purchaser evaluate the cost of making an item instead of simply evaluating the purchase price? Is this true for all types of products? Why or why not?

Answer: The Make or Buy decision is an important element, particularly with the increase in global tariffs. It requires consideration of inventory costs, transport costs, and tariffs/customs, which may add up to a higher total cost than the cost of producing it internally, even though the overseas price may be lower.

Answers will vary by student, but may include:      

A major responsibility of supply management is to ensure that the price paid for an item is fair and reasonable.

The need to control costs requires a focus on the costs associated with producing an item or service versus simply analyzing final price.

Innovative pricing approaches involve cost identification as a process leading to agreement on a final price.

Some supply markets will not require detailed cost analysis.

The marketplace determines price.

A seller’s cost structure affects price because, in the long run, the seller must price at some level that covers all variable costs of production and contributes to some portion of fixed costs and contributes to some level of profit.

141.

List some of the reasons suppliers are reluctant to share detailed cost information. What can purchasers do to convince suppliers that shared cost data will not be exploited?

Answer:  

The supplier may not fully understand its actual cost structure.

The supplier may believe the buyer will utilize this information to its own benefit and squeeze the supplier’s profit margins.  Buyers can collect cost details by making its inclusion mandatory as part of a request for information or request for proposal.

142.

Is global sourcing always the lowest-cost option on account of the low labor rates? What other types of data must go into this decision?

Answer: No, it is not always the lowest cost. Tariffs, transportation, and inventory costs must be factored into the decision.

143.

What is the difference between a fixed cost, a semi-variable cost, and a variable cost?

Answer:

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 



Fixed cost – cost that does not change with changes in volume Semi-variable cost – cost with both a fixed-cost component and a variable-cost component. The cost is fixed for a set level of production or consumption and becomes variable after this production level is exceeded.

Variable cost – cost that changes with changes in volume

144.

Discuss the different pricing strategies a seller can use along with the key features of each. Provide examples of current marketplaces where these types of pricing arrangements are shifting dramatically.

Answer: 



  





Price volume model: o Supplier analyzes the market to find the combination of price per unit and quantity of sales that maximizes its profit.  Lowering the price will result in more units being sold.  Greater volume will spread the indirect cost over more units.

Market-share model: o Based on the fact that long-run profitability depends on the market share obtained by the supplier. o Also known as penetration pricing. o Leads to faster market penetration because of the lower profit margins the supplier is willing to accept initially.

Market skimming model: o Prices are set to achieve a high profit on each unit.

Revenue pricing model: o Obtaining sufficient revenue to pay for operating cost rather than on profit.

Promotional pricing model: o Pricing for individual products and services that enhance the sales of the overall product line rather than ensuring the profitability of each product Competition pricing model: o Pricing actions or reactions to pricing proposals offered or expected to be offered by the supplier’s competitors Cash discounts: o Offer incentives to buyers to pay invoices promptly

145.

Can you provide examples of suppliers or industries that are currently utilizing a price volume model, market share model, competition pricing model, and revenue pricing model?

Answer: Answers will vary by student.

146.

What types of cost information are available on the Internet? What types of price information are available on the Internet? Is this information reliable?

Answer:  

Total direct labor by SIC code Total material by SIC code

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 

Financial information Commodity prices and availability

147.

Under what conditions does a buyer have the most supply management leverage over a seller?

Answer:        148.

Large number of suppliers Low barriers to entry by new suppliers Many substitute products are available Low industry and firm capacity utilization Relatively large compared to supplier Supply exceeds demand Industry in decline When does a seller have the most leverage over a buyer?

Answer:        

Monopoly conditions High barriers to entry by new suppliers Higher efficiency than competitors Key item for buyers with no substitutes High industry and firm capacity utilization Relatively large compared to buyer Demand exceeds supply Industry growing

149.

What is the TCO concept? What are some of the challenges that must be overcome when implementing a total cost measurement system?

Answer: 

Total cost of ownership: o



Identify and measure costs beyond the standard unit price, transportation, and tooling. o Present value of all costs associated with a product, service, or capital equipment that are incurred over its expected life.

Challenges: o o o o o o o

Building a TCO can be a costly and time-intensive activity.

Need to obtain senior management buy-in.

Need to create a team.

Data gathering and quantification of costs Focus on the big costs first.

Make a realistic estimate of the product life cycle.

Need to consider all costs.

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150.

What are the benefits from measuring the TCO for a purchased item? Are there any potential disadvantages of this approach? If so, what are they?

Answer:  

Understanding the true cost of a product or service Time and effort can be substantial.

151.

How is the price of an item established in a target pricing contract? What makes target pricing attractive to a buyer and a seller?

Answer:   

A product’s allowable cost is a function of what a market segment is willing to pay less the profit goals for the product.

The difference between the supplier’s price and the target cost becomes the strategic costreduction objective.

Cost for both is reduced.

152.

Can a company use a target pricing model without a follow-on cost-savings sharing agreement? Why or why not?

Answer:  

No. Cost-savings sharing works to continue to reduce the price year-over-year.

153.

If a buyer and seller do not have a close working relationship, how can a buyer obtain cost data to perform a cost analysis for a supplier before awarding a purchase contract?

Answer:   

Estimate supply costs using reverse price analysis (―should cost‖).

Based on industry information, internal engineering estimates, historical experience, and judgment.

Review of public financial documents to identify key cost data about the seller.

154.

What happens if a supplier cannot meet a purchaser’s initial target price? How is this issue resolved?

Answer: The parties work together using value engineering, quality function deployment, design for manufacturing/ assembly, and standardization tools. [return to top]

Instructor Manual Handfield, Purchasing and Supply Chain Management, 8e, 2026; 9798214042039; Chapter 12: Purchasing and Supply Chain Analysis: Tools and Techniques

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

155.

Why does the learning curve apply mainly to direct rather than indirect labor?

Answer: Direct labor requires a large number of hours on most projects, e.g. construction, aircraft, and ships. Therefore, learning to reduce the number of direct labor, especially on new products, greatly impacts final costs. Indirect labor is calculated into overhead portion of costs, however, improvements in direct labor will impact overhead as firms usually apply an overhead calculation to direct labor when estimating or calculating costs. For example, direct labor times 150 percent = indirect labor.

156.

If each time production volume doubles the cumulative average direct-labor hours decreased by 5 percent, what would be the appropriate learning rate applied to the supplier’s direct-labor hours?

Answer: 95 percent 157.

Discuss why it is important for buyers to have knowledge of supplier’s learning rate when preparing to negotiate a purchase contract.

Answer: If learning occurs at a supplier during the performance of a purchase contract, and the buyer does not take that into account, then the supplier will reap the financial benefits that result from learning. Alternatively, if the buyer tracks such learning, the savings on direct labor.

They will not go entirely into increased supplier profits, or all to the buyer as cost savings but split between both the seller and buyer encouraging future learning.

158.

Do you feel learning is different in professional services firms versus manufacturing organizations? Explain why or why not.

Answer:   

Services exhibit virtually no depreciation of knowledge, and the rate of learning accelerates with experience.

The learning effect in services is not gained from direct repetition but rather through insights generated from prior projects.

Learning gains in professional services are much harder to estimate. One way to capture is through technologies that codify and map the collective experience. However, purchasers can expect pushback from service providers and the gains would be achieved via a close working relationship and need to be negotiated up front in the contract and allow for monitoring recording and tracking of activities.

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159.

Describe the concept of value as it relates to value analysis. Provide examples of how an organization can increase value to itself or to its customers.

Answer:     

160.

Value can be defined as the function performed by the component, assembly or item divided by its cost. Mathematically, this is expressed as: Value = Function/Cost Value analysis examines all elements of a component, assembly, end product, or service to make sure it fulfills its intended function at the lowest total cost.

The lowest total cost at which an item, product, or service achieves its primary function along with satisfying the time, place, and quality requirements of customers Value analysis applies to existing products, while value engineering applies during product or service design.

There are many items that illustrate the concept of value and cost. For example, what is the value of the clip on a mechanical pen or pencil? Some students will say to secure it to their clothing, others will say it serves no purpose other than perceived appeal in enhancing the looks of the item.

Why do progressive firms actively practice value analysis?

Answer:  

It is a way to achieve continuous improvement in an item, product, or service by giving the customer more or value for a lower cost.

This technique does not lower the value of a product or service by lowering quality. The goal is to enhance or maintain the value adding performance attributes to meet or exceed customers’ expectations.

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161.

Assume you are the leader of a value analysis team. Discuss how you would go about identifying value analysis opportunities.

Answer:  

Ask a series of analytical questions to determine if opportunities exist for item, product, or service improvement [see Section 12-4b for specific examples of questions] Value Analysis Process Stages o Gather information o Speculate o Analyze o Recommend and execute o Summarize and follow up

162.

What are the major differences in working on projects, as opposed to general work in most purchasing environments?

Answer: In a project environment purchasers are applying knowledge, skills, tools, and techniques to a broad range of activities necessary to meet the requirements of a particular project.

A project can be defined as a series of tasks that requires the completion of specific objectives within a certain timeframe. These timeframes have specific start and stop dates. A project consumes resources, requiring time, material and personnel. The budget keeps the project operating within the parameters of its limited resources.

General work activities of the purchasing department focus more on meeting the current and future needs of the organization. These ongoing activities are performed to achieve the goals and mission of the organization.

163.

In general, do you believe the demands and responsibilities placed on project managers are making them more valuable to organizations? Why or why not?

Answer: Yes, because as purchasing becomes more strategic there is more involvement with internal customers and external suppliers working on projects that increase the bottom-line profit of the firm. By their very nature these activities are more project-driven and have timelines, consume resources and have specific goals.

164.

When are users most likely to use Gantt charts for project management? When are they likely to use Critical Path Method or Program Evaluation and Review Technique?

Answer: 



Gantt charts: o Visually displays the tasks and times associated with a project o Best for smaller, less complex projects Critical Path Method or Program Evaluation and Review Technique: o Best for complex projects with many activities or tasks o PERT only  Need to have variable time estimates

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11. What does it mean for a path to have three weeks of slack? Does each activity necessarily have three weeks of slack? Why or why not?

Answer: Slack is the amount of time that activities along the path can be delayed without delaying the entire project.

Because each activity on the critical path has no slack, but activities on the critical path have slack.

12. Discuss the information gained from flowcharting a process.

Answer:  

Critical path – pathway through the flowchart where there is no slack, e.g., the longest path in time Relationship between activities- that include: 1) activity precedence and 2) time and sequence

[return to top]

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

165.

Why is negotiation such an important part of the purchasing process?

Answer:    

166.

Buyers negotiate sourcing agreements with multiple suppliers.

Vital part of every sourcing process Supports sourcing strategies and plans Critical means to convey the buyer’s specific sourcing requirements and specifications to its supply base.

Discuss the resources necessary to support effective negotiation planning and execution.

Answer:    

Communication means Time, information, and power Interpersonal skills Training and experience

167.

The parties to a sourcing negotiation can discuss many issues besides price. Select five nonprice issues over which a buyer and seller can reach agreement and explain why each issue might be important to the buyer or seller.

Answer: Answers will vary by student, but could include the following:     

Quality Delivery Cost savings sharing Length of agreement Early supplier involvement

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168.

Will electronic purchasing through the Internet increase or decrease the need for negotiation between buyers and sellers? Why? Answer: Answers will vary by student.  169.

Negotiation is still needed between buyers and suppliers to resolve issues and conflicts; the only thing that has changed is the means of interaction Develop a profile of a skilled or effective negotiator.

Answer:        170.

Persuasiveness Listening Ability to focus on issues Planner Interpersonal or soft skills Collaborator Flexible Contrast a win-win negotiator with a win-lose negotiator.

Answer: 

Win-win: o o o o



Understand each other’s needs and wants.

Focus on common rather than personal interests.

Conduct joint efforts to solve problems and develop creative solutions that provide additional value.

Engage in open sharing of information.

Win-lose: o o o o

Assume rigid negotiating positions.

Compete over a fixed amount of value.

Practice strict use of power by one party over another.

Purse adversarial relationships.

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171.

Discuss different strengths and weaknesses that a buyer and seller might bring to the negotiating table.

Answer: Answers will vary by student.

172.

What information should a buyer gather about a supplier before entering a negotiation?

Answer:       

173.

Ability to complete the sourcing contract Estimate its needs and wants.

Determine likely positions and try to discern underlying interests behind the positions.

How has the supplier negotiated in the past?

Identify the participants.

Analyze both parties’ strengths and weaknesses.

What are the forces pushing for the preferred outcomes? Against?

What are likely to be the most important sources of power in a buyer–seller negotiation?

Answer: 

Informational power o Ready access to relevant and useful information  Reward power o One party is able to offer something of perceived value to the other party  Coercive power o Includes the ability to punish the other party  Legitimate power o The official job position or title that an individual holds, rather than the characteristics of the individual  Expert power o Expert is recognized has having accumulated and mastered a high level of knowledge about a particular subject  Referent power o Comes from interpersonal appeal based on socially acceptable individual qualities and attributes 174.

Why are concessions important during a sourcing negotiation? How do the parties to a negotiation demonstrate their willingness to compromise?

Answer:   

Concession – movement away from a negotiation position that offers something of value to the other party to ultimately gain something else of value Offer something of low value (to you) that the other party values.

Concessions indicate a negotiator’s willingness to back off stated positions.

175.

What is the risk of relying too heavily on the typical profiles of international negotiators?

Is there a benefit to using these profiles?

Answer:

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There are always significant individual differences within a single culture. Cultural stereotypes cannot be oversimplified or relied upon in all instances and for all people from that culture. Cultural stereotypes can, however, provide a beginning point in preparing the negotiation.

176.

Give examples of tactics practiced by a buyer or seller that might be considered unethical.

Answer: Answers will vary by student, but could include the following:     

Low ball High ball Best and final offer Lying Silence

177.

Discuss the concept of BATNA and explain how a negotiator can effectively use it to plan a negotiation.

Answer: 



BATNA – best alternative to a negotiated agreement: o Also known as the bottom line or reservation point o That point in the negotiation where it is most advantageous to for the negotiator to walk away from the table and implement the next best option Knowing when to walk away helps prevent reaching a bad agreement when a more favorable alternative may be available elsewhere

14. Describe the technique of using Triangle Talk to plan a sourcing negotiation.

Answer: 





Step 1 – Know exactly what you want o Be specific o Write them down o Consider stakeholders Step 2 – Know exactly what they want o Consider their likely positions o Try to discern likely underlying interests o Ask open-ended, probing questions o Make the other party feel heard Step 3 – Propose action in a way that they can accept o Take the other party’s needs and wants into account o Make it easy for the other party to say, ―Yes‖ o Remain flexible, fair, and reasonable

15. Explain how and when the negotiator can effectively use e-negotiation techniques.

Answer:

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





Step 1 – Know exactly what you want o Be specific. o Write them down. o Consider stakeholders.

Step 2 – Know exactly what they want o Consider their likely positions. o Try to discern likely underlying interests. o Ask open-ended, probing questions. o Make the other party feel heard.

Step 3 – Propose action in a way that they can accept o Take the other party’s needs and wants into account. o Make it easy for the other party to say, ―Yes‖. o Remain flexible, fair, and reasonable.

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16. Describe the technique of using Triangle Talk to plan a sourcing negotiation.

Answer: Triangle Talk involves having a focused session to: 1) determining and formalizing the negotiator’s own specific goals and objectives for the upcoming negotiation.

2) trying to discern what the negotiator’s counterpart is likely to need or want from the negotiation.

3) consideration and analysis of the negotiator’s own needs and wants and the needs and wants of the other party 17. Explain how and when the negotiator can effectively use e-negotiation techniques.

Answer: Use of electronic media such as e-mail, texting, and instant messaging can dramatically change the nature and effectiveness of a negotiation. One advantage of enegotiating is that the negotiator can read and reflect on the e-mail communication before responding. However, it is more difficult to establish a cordial and cooperative relationship electronically.

Strategic negotiations for complex and high value purchases should be done in person not through e-negotiation. [return to top]

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

178.

Where do you believe buyers spend most of their time in negotiations: on the upfront clauses or on the attached schedules?

Answer:  

The upfront clauses are standard, boilerplate terms and conditions that tend to remain the same.

The attached schedules are contract specific.

179.

What are some examples of price indices that might be used to track commodity prices such as steel or copper, and how should they be included in the schedule to minimize risk to both parties?

Answer: 



Indices: o Producer Price Index o Consumer Price Index o Industry-specific indices Make specific reference to them in the contract’s attached price schedule and how they are to be used

180.

What are the risks to buyers associated with each of the different types of contracts (fixed-price, incentive, and cost-based contracts)?

Answer: 





Fixed-price contract: o Low risk to buyer as price is predetermined or how price changes will be handled. o Risk is that supplier may build in contingencies to alleviate their cost risks.

Incentive contract: o Moderate risk to buyer o Important to identify allowable costs upfront o Shared risk with supplier Cost-based contract: o High risk to buyer o Need to build in supplier’s activities to control costs on behalf of the buyer.

181.

What are the risks to suppliers associated with each of the different types of contracts (fixed-price, incentive, and cost-based contracts)?

Answer: A fixed price contract will shift the risks to the supplier, as they are responsible for upside and downside. A cost-based contract shifts the risks to the buyer, as they are responsible for

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all costs incurred. An incentive based equalizes the risk, as both parties participate in cost savings efforts.

182.

Which types of firms are most suited to using turnkey systems contracts for their information system development?

Answer: 

Fixed-price contract o High risk to supplier as price changes are not allowed except under certain circumstances



Incentive contract o Moderate risk to supplier



Cost-based contract o Low risk to supplier as it gets reimbursed for allowable cost changes

183.

Suppose you are a purchase manager who is the contract administrator for a major consulting firm installing a major enterprise resource planning system such as SAP or Oracle.

What are some of the key elements that you would wish to include in the contract with the consulting company implementing this system?

Answer:      

Technical evaluation of the system How to handle change orders Pricing mechanism Performance criteria Outsourcing of services Conversion plan

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184.

Why do consultants typically want to avoid including detailed outcomes in their contracts? Is this ethical?

Answer:    185.

Higher level of details may involve more activities, lowering its profits.

Minimize its liability to the buyer.

Ethics is a gray area here.

Under what conditions are short-term contracts preferable to long-term contracts?

Answer:     

No relationship is needed.

Commodity-like products with multiple available sources Supplier commitment not required.

Volume uncertainty Market determines prices efficiently

186.

Certain industries, such as the computer industry, are faced with constantly changing technologies, short product life cycles, many small-component suppliers, and demanding customers. Under these conditions, what type of contract would you recommend for a critical component supplier? What other measures would you include in this contract?

Answer: Answers will vary by student; but some form of cost-based contract may be preferred. Other measures include:    

Access to supplier technology Access to cost/price information Information on technology research and development Assurance of supply

187.

What are the implications for contract writing as a result of electronic signatures now being enforceable by law?

Answer: Use the word ―record‖ to replace ―document‖ or ―writing‖.

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188.

What are the dangers associated with taking an old contract and merely changing the name of the supplier for use in a new, three-year contract with a different supplier?

Answer: Market and supplier situations change over time.

189.

Why do many firms attempt to avoid litigation in settling contract disputes?

Answer:   

190.

Expensive Time-consuming Different interpretations in different courts of law (uncertainty) What are the different venues available for arbitration settlements?

Answer:      

How to choose an arbitrator Binding vs. non-binding Mediation Minitrial Rent-a-judge Dispute prevention

191.

What are the implications of e-commerce on enforcing contracts? Where do you think the venue for resolution should be if a conflict arises?

Answer: Answers will vary by students, but might include the following:  

Spell out terms regarding shrink-wrap, clickwrap, and box top agreements.

Suppliers should develop a mechanism to ensure that an order it receives is legitimate.

[return to top]

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

192.

Why is it important for supply managers to understand legal issues? Is that not the lawyer’s job?

Answer: 

   193.

Supply managers need to understand legal issues to do their job both efficiently and effectively. Legal counsel’s advice is reserved for very large dollar expenditures, specialty items (e.g. software), and or complex negotiations requiring legal support.

Supply managers are responsible for a wide variety of contractual purchases and can commit their firms to large sums of expenditures.

The cost of making poor or unethical decisions can be significant.

The lawyers should work with supply management to ensure that legal and ethical issues are addressed appropriately.

What is the relationship among contract law, the UCC, and commercial law?

Answer: 





Contract law: o Determines the nature of agreements that are enforceable and create legal rights between the parties. o Characteristics of offer and acceptance, satisfaction, and nonperformance have already been clarified by the law. o Contracts allow the shifting of risks between the parties and are the foundation and fabric for every supply chain relationship UCC: o Is a body of laws drafted by a board of legal scholars in the 1950’s. It concerns business transactions and was intended to make business transactions regular and predictable. o It establishes each party’s rights and obligations based on concepts of fairness and reasonableness. o One goal was to reduce state to state variations in laws. o It does not apply to international contracts. o UCC Article 2 ―sales contracts‖ supports the buying firm’s position in commercial dealings with suppliers. o Its standard terms apply unless the parties agree to something else. o It is for the sale of goods without proactive action by the buyer, the sale of services will be covered by common law Commercial law: o Refers to how business firms (parties) enter into contracts with each other, execute contracts, and remedy problems that arise in the process.

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o

The two areas of day to day interest to purchasers are laws regarding agency and laws regarding contracts

194.

What does the term ―agent‖ mean? Under what conditions can purchasing agents be held personally responsible for abusing their position?

Answer:  

Agent – person or entity who has been authorized to act on behalf of some other person or entity Conditions where an agent can be held personally liable: o Not acting in the best interests of the employer o Exceeding his/her actual authority and apparent authority o Damaging or illegal activities outside his/her scope of authority o Deception for personal gain o Violating the lawful protection of items owned by others o Misusing proprietary information o Violation of antitrust laws o Unlawful transportation of hazardous materials and toxic waste

195.

Suppose you arrive at a verbal agreement with someone on the price of purchasing his/her vehicle. Under what conditions have you reached an enforceable contract Answer: To be enforceable a contract must contain certain elements including those listed below:      

Offer Acceptance Consideration Competent parties or mutual assent Legal subject matter It must be in writing if the sales price is greater than $500 (UCC).

196.

Suppose you sign a contract with a supplier for $50,000 worth of tablet computers. You tell the supplier that you are only authorized to sign contracts for $40,000 without approval from the supply manager of your company, but the supplier agrees anyway. A few days later, because of budget cutbacks you find out that you only need $30,000 worth of tablet computers. How many dollars of tablet computers are you legally bound to purchase from the supplier?

Answer: $40,000 197.

A seller verbally tells you that their cleaning product can remove any stain from the surface of your company vehicles. Your maintenance crew later discovers that the claim is not true. In fact, they find that the cleaning product does a poor job removing stains. Do you have a legal claim against this seller? What types of damages are you entitled to?

Answer: The major question here is has the seller made an express warranty or just a general statement about the product (more of an implied warranty). As described above it is most likely an

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Implied warranty of fitness for use and the buyer relied on the seller’s statement. Thus, the buyer is entitled to receive restitution for the actual damages, which is most likely refunding of the full price paid. As secondary point that would strengthen the buyer’s position here is the authority of the seller. If the seller was a marketing manager and therefore a general agent with broad authority. A salesperson is a special agent with limited authority to only solicit orders. Thus, the buyer would have additional support to receive a full refund.

198.

In Question 6 the seller points to the fine print on the product, which states that the product can only be used in temperatures above forty degrees Fahrenheit. Your employees were using it in temperatures of thirty-two degrees. Do you have a claim?

Answer: This would certainly weaken the buyer’s case. However, such a key item should be discussed with the buyer and not hidden under the terms and conditions. While this specific condition could alter the implied warranty for fitness and use. The buyer would argue that this key fact was not discussed any time during the contract discussions. As an alternative the buyer may try the product once the temperature is greater than or equal to forty degrees.

199.

What are the important contract items that should be included when entering into a longterm contract (e.g., more than one year) with a supplier?

Answer:           200.

Price change mechanism Ability to terminate the contract Arbitration clause Order release mechanism Breach of contract Order cancellation Damages and remedies Acceptance and rejection of goods Warranties Patents and intellectual properties Briefly, explain the UCC. Is it enforceable in all 50 states of the United States?

Answer: 



It is a body of law drafted by a board of legal scholars in the 1950’s. It concerns business transactions and was intended to make business transactions regular and predictable. It has also been termed a ―gap filler‖ and applies when the contract is silent on a term that the UCC addresses. Article 2 ―sales contracts‖ covers commercial transactions between purchasers and sellers.

Louisiana has not adopted it

201.

You write a contract that contains specific language about transportation requirements, and the supplier agrees. Then later he/she claims that it is not acceptable under the UCC. Who has the strongest argument in this case and why?

Answer:

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Your specific language on the transportation requirements in this case take precedence over the UCC.

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202.

Suppose a supplier gives you a price on a contract and then later comes back and claims that he or she mistakenly wrote down the wrong price. Do you have the right to sue the supplier over breach of contract? What conditions are important here?

Answer:     

Generally, honest mistakes by one party will not void a contract.

Mistakes are not covered by the UCC. As a general rule, a party will not be given relief against a mistake induced by their own negligence.

If the supplier notified the buyer after bid submission and prior to purchase order, then the courts would likely allow the sellers claim.

If the supplier canceled the order, then the buyer could demand ―specific performance‖ requiring the seller to ship the goods. In this case the buyer has a strong case for delivery.

12. Discuss the concept of ethics. Why is the purchasing profession particularly sensitive to this topic?

Answer: Ethics is a broad subject that identifies common principles associated with appropriate vs. inappropriate business actions, moral duty, and obligation. It is also a set of moral principles or values guiding behavior regarding justice and fairness.

Purchasers are particularly sensitive and confront ethical issues daily due to:    

Confronting ethical dilemmas where sellers offer gifts and favors Dealing with seller who employ unethical sales practices The need to treat suppliers professionally and with respect Have direct control over large sums of money

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13. Intellectual property and patent laws vary greatly in developing countries. How would you propose to protect your products in a developing country with a large population where the CEO of a generic pharmaceutical manufacturer states: ―The U.S. would grant a patent on a piece of toilet paper. Just because the U.S. granted a patent doesn’t mean it should be valid on our country.‖ Answer:   

Find sellers who understand U.S. laws regarding intellectual property (IP) despite their countries business practices and understand the need to protect IP. Apply for local patents in countries where your product will be used or sold.

Look for sellers who have facilities or customers in the U.S. In a legal dispute these assets could be seized or frozen, giving the buyer a degree of power.

14. Discuss the reasons why some issues that confront a buyer are often not clear from an ethical perspective.

Answer:     

Lack of a company policy on gifts and gratuities from suppliers Uncertainty on the role of business meals (lunches and dinners) and who pays for such meals Foreign-based companies often have different business customs and practices.

What does maintaining a supplier’s price confidentiality mean?

Undue influence and actions by senior managers who ask for gifts and gratuities

15. What is the purpose of a professional code of purchasing ethics?

Answer:    

Defines ethics from a broader perspective for companies who do not have an ethics policy Based on many situations and various levels of experience Formalizes the concept of ethics for the entire profession Guiding principles: o Loyalty to company o Justice to those with whom a buyer deals o Faith in the purchasing profession

16. Why is it important for a firm to have a written ethics policy? Why is it important to have top management’s commitment to the policy?

Answer:  

If written, it can be discussed and disseminated.

Provides a standard code of conduct as opposed to one based on the actions of individual buyers and/or managers.

17. Discuss why you would be more interested in working for an organization that supports environmentally friendly policies. Are there any negatives to working for an environmentally friendly organization?

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Answer:   

Those individuals who are concerned about environmental and sustainable issues feel the firm meets their objectives and goals.

Broadly contributing to improving society and not just focused totally on profits.

A negative is the potential added costs, particularly if competitors are not complying.

18. You are a supply manager for a major distributor; the CEO has strongly encouraged that you buy lighting products for the new municipal stadium from a supplier that belongs to the CEO’s country club. How would you handle this attempt to influence you?

Answer: 



Possible actions: o Get the CEO to put his/her request in writing. o Have a higher-ranking supply manager address this issue with the CEO. o Refer to corporate ethics policy or ombudsman. o Show what the cost to the organization is in terms of premium price, delivery and any quality differences.

If this is a continual problem with no long-term solution look for other employment opportunities.

[return to top]

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

203.

What does it mean to say that higher inventory levels often disguise underlying problems? What types of problems does this indicate?

Answer:  

If there is physical inventory to cover immediate needs, the firm is less likely to investigate or correct the underlying problems.

Problems: o Poor material quality o In accurate demand-forecasting systems o Unreliable supplier delivery

204.

How is purchasing directly and indirectly involved in the control of a firm’s inventory investment?

Answer:     205.

Frequency of orders Quantity of orders Not actively seeking out problems Not eliminating waste What are some of the operational problems that excessive WIP inventory might indicate?

Answer:   

Production bottlenecks or delays Waiting for further work to be done Poor scheduling

206.

Discuss several reasons why managers often neglect the true costs of holding physical inventory. What has happened to change our perspective about holding physical inventory?

Answer: 



Accounting may not be capturing all related costs to holding inventory. o Indirect labor and allocated overhead o Transportation costs o Cost of capital o Cost of storage o Costs of obsolescence, deterioration, and loss o Quality costs o Cost of ordering Change: o Availability of activity-based costing techniques

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o 207.

Recognition of the impact of carrying inventory

Why is the control of MRO inventory typically a difficult task for most companies?

Answer: MRO inventory management is often determined by maintenance, engineering, and operations personnel. Their goal is to ―never run out‖, which means there may often be obsolete or ―hidden‖ inventory that is difficult to manage.

208.

What are the benefits of calculating the total cost of ownership associated with carrying physical inventory?

Answer:      

MRO is kept throughout the organization, so it is hard to see total value.

May be ordered by non-purchasing personnel.

The organization does not track with the same intensity of effort.

Multiple or obsolete inventories Pilferage is not tracked.

Smarter investment decisions

209.

Of the following functions of physical inventory, select the one that purchasing is most likely to be directly involved in (a) support of production requirements, (b) support of operational requirements, or (c) support of customer service requirements. Explain your choice.

Answer: Answers will vary by student. Look for logic and understanding in assessing student responses.

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210.

Describe the actions that purchasing can take to reduce uncertainty associated with (a) supplier quality, (b) supplier delivery, (c) long order-cycle times, (d) extended material pipelines, and (e) inaccurate demand forecasts.

Answer: 









Quality: o Buy from better suppliers. o Do not buy on price alone. o Uncover root cause of problems. o Utilize supply base rationalization and optimization strategies.

Supplier delivery: o Buy from nearby suppliers. o Small, more frequent deliveries o Buy from more highly capable suppliers. o Provide more stable delivery schedules with fewer changes.

Long-order cycle times: o Buy from nearby suppliers. o Improved demand forecasting o Identify areas in which lead time can be removed.

Extended material pipelines: o Remove uncertainty. o Improve packaging to lower in-transit damages. o Buy more from nearby or domestic suppliers.

In accurate demand forecasts: o Investigate and implement more accurate forecasting systems to reduce forecast error. o Buy more from nearby or domestic suppliers.

211.

What problems does over forecasting demand create within a supply chain? What problems does under forecasting demand create? What can a company do to resolve the problem of forecasting inaccuracy?

Answer: 





Over-forecasting: o Increased inventory from unsold stock o Lower profitability from selling excess inventory at a lower price Under-forecasting: o Lost sales o Use of expensive, premium transportation to get new inventory Improve accuracy: o Implement a more accurate forecasting system. o Make a single point of contact responsible for forecasting. o Increase accuracy and timeliness of intra-firm communication.

212.

The chapter presented various approaches for the control of inventory investment.

Discuss three additional approaches not included that might involve supply chain managers.

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Answer:    213.

Engaging finance on end of quarter inventory write-offs Discussing inventory planning for new product introduction Understanding inventory relative to forecasts when tariffs are put in place What is a lean supply chain? Explain the three primary elements of a lean system.

Answer: 

Lean supply chain: o A way to understand value from the customer’s perspective and eliminate waste that does not add value to the customer o Process improvement philosophy

214.

What are the main characteristics of a lean supply system? What are the barriers to a lean supply system?

Answer: 



Characteristics: o Reducing lead times o Reducing inventory o Eliminating bottlenecks o Eliminating non-value-adding processes Barriers: o Western culture o Dispersed supply base o Historical buyer-seller relationships o Number of suppliers o Supplier quality performance

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215.

What is a closed-loop transportation system? Why does such a system require dedicated or contracted transportation carriers?

Answer:  

Frequent deliveries of smaller quantities directly to the point of use at the purchaser on a regular and repeatable schedule Transportation needs to be available when and where needed every time.

216.

When putting in place a lean supply system, what changes typically occur in the ordering and transportation system between buyer and seller?

Answer:       

Reduced number of carriers Longer-term contracts Electronic linkages Closed loop system Handle material efficiently Kanban or equivalent order system Make decisions based on facts and not judgment.

217.

Discuss the advantages of taking a system-wide approach to the control of inventory investment. Are there any disadvantages? If yes, discuss the disadvantages.

Answer:       218.

All pieces of the system need to be involved.

Look at improving end-to-end material flow.

More accurate records Simpler product design Leverage companywide purchase volumes.

Use of suppliers to manage on-site inventory What is the perfect order? Why do so few companies measure the perfect order?

Answer:  No variations in quality, quantity, delivery time, etc.  Must reinvent the inventory management system. [return to top]

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

219.

Discuss the business and legislative changes that resulted in an increased emphasis on sourcing of transportation and logistics activities.

Answer: 



Business demands focused on: o Shorter order cycle times o Last mile delivery to customers o Competing with global suppliers o Improving the reverse logistics process o Improving the coordination of inbound and outbound transportation Legislative Issues: o U.S. legislation deregulating transportation in the 1970s and 1980s o Terrorism, particularly 9/11 increased the need for security in transportation o Pandemics, wars, natural disasters created need for humanitarian logistics and government support

220.

What are the benefits associated with maintaining control and visibility of transportation shipments?

Answer:      

More effective inventory management Reduced safety stock More effective planning and tracking enables meeting customer demands.

Cost reduction Load and routing optimization enables effective management of transportation costs.

Improved carrier performance management ensures that the right carriers are selected and used.

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221.

Discuss any current transportation issues that will impact supply managers.

Answer: 

Issues: o o o o



Impact: o o o

Supply chain security Deteriorating or substandard infrastructure conditions require alternative modes.

Traffic congestion increases delivery times and wastes fuel.

Documentation and special handling requirements create additional administrative costs.

Longer shipping lead times Increased number of shipping delays Additional costs of fuel, labor and maintenance

222.

What are the key items you should review with a transportation or logistics service provider (3PL) during a negotiation?

Answer:           223.

Total cost per shipment or annually Speed of delivery Reliability in delivery times Capability to handle different shipment types Accessibility in terms of geographic reach and door to door capabilities Loss and damage protocols and responsibilities Capacity in terms of weight and volumes Tracking and expediting capability Reporting requirements and measurements Electronic billing and tracking capabilities Explain what a 3PL provider does.

Answer: A 3PL is a third-party firm responsible for managing all of the buyer’s inbound and outbound transportation, as well as providing other logistics and warehousing services.

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224.

Under what conditions would a buyer prefer that a 3PL provider arranges and controls the transportation and storage of purchased items.

Answer: 

Small- to medium-sized firms with insufficient experience or expertise in managing transportation and warehousing functions Handling a great variety of items with small volumes creating conditions of low economies of scale. It also poses challenges for rate and load optimization.

225.

Compare the relative costs and service advantages and disadvantages of air, motor, water, pipeline, and rail carriers.

Answer: 





Air carriers: o Advantages  Speed and reliability  Good for light/small, high-value shipments  Good for expediting/emergency situations requiring short transportation cycle time o Disadvantages  Highest cost  Location of airports limits shipping points  Door to door service limited to small parcel carriers (e.g. UPS, Fed Ex etc.) Cannot be used for large, bulky, or hazardous shipments Motor carriers: o Advantages  High flexibility  Good speed  Good reliability  Good for JIT delivery  Negotiable rates o Disadvantages  High cost  Limited to domestic or regional transportation  Less used for large volume and low value bulk commodities e.g. coal, sand, gravel etc.

Water carriers: o Advantages  Good for bulk commodities (inland)  Good for heavy, large items  Attractive for International shipments  Can handle most types of freight  Low cost o Disadvantages  Limited flexibility  Seasonal availability  Long lead times

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



 Poor reliability (may encounter delays at ports, etc.)

Pipeline carriers: o Advantages  Good for high-volume liquids and gases  Low cost after initial capital outlays o Disadvantages  High up-front installation costs  Limited to only certain items  Must overcome environmental and political resistance Rail carriers: o Advantages  Lower cost per ton/mile particularly on longer shipments  Can handle a wide range of items  Piggyback service can increase flexibility  Direct shipments between major cities  Infrastructure permits intermodal service  Can be used for hazardous materials  Passenger safety factor as increased rail shipments reduce the number of truck shipments on the Interstate highways o Disadvantages  Limited door to door capability to all locations  Shipper must have access to rail line or spur  Longer in-transit lead times than air or truck   Continually faces threat of reregulation particularly when derailments occur

226.

What are the major differences between a common and a contract carrier? Can a buyer negotiate with a common carrier? Why or why not?

Answer: 





Common carrier: o By law they must serve the general public without discrimination based on published rates for specific goods. o Must offer reasonable rates.

Contract carrier o Does not hold itself out to the general public. o Serves a shipper under specific, negotiated contract terms. o Provides only those services that have been negotiated with the shipper at a mutually agreed-upon price.

Yes, particularly since many common carriers will offer to provide service as a contract carrier. Thus, the buyer can negotiate transportation rates and service requirements.

Whereas contract carriers usually specialize in a few commodities (e.g. steel plate or coiled steel).

227.

How can a buyer effectively use SOWs or SLAs to control the costs of procuring services?

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Answer:  



SLAs can be part of an SOW or a separate set of terms that incentivize the carrier to improve its performance while meeting the buyer’s performance requirements SLAs often include Performance Based Logistics (PBL) which involves moving away from a transaction-based business model toward meeting the mutual interests of both the buyer and the logistics service provider.

Under the terms of a PBL, the buyer clearly delineates preferred outcomes in terms of value-added and overall systems costs.

228.

What are the different types of performance metrics used to measure transportation providers? Could this same list be used for a 3PL provider? Why or why not?

Answer: (Note-see question 4 for a complete and detailed set of 3PL metrics) 



Performance metrics: o Total cost o Speed o Reliability o Capability o Accessibility Yes, performance metrics will be assigned depending on the commodity, item or product shipped and the customer or supplier location and facilities. 3PLs other than Fed Ex, UPS and DHL etc. are mostly non-asset-based. They perform identical functions to the buyer of direct transportation services and should be measured to the same standards.

229.

3PL providers often cite their ability to provide access to critical performance and operating data. Explain what is meant by this statement.

Answer: By specializing, a 3PL can create more sophisticated data collection and carrier performance management systems that many smaller, less-capable buyers would be unable to duplicate.

230.

Provide examples of spend that would fall under the category of services versus indirect spending. What is the difference between the two?

Answer: 



Indirect spending in a manufacturing environment involves any items not directly going into the product or service provided. Such items include parts to support production machinery, capital equipment buys, computer hardware and software, mobile devices, pallets, shelving racks, fork trucks etc.

Services include trash removal, grounds maintenance, office cleaning, consultants, systems support, technical personnel, travel, advertising, retirement plans etc.

231.

One of the biggest problems cited by supply managers is identifying where and how the indirect spending is taking place. Why do you think this is the case?

Answer: 

Historically, indirect spend does not receive a great deal of managerial attention. It was not high on supply management’s traditional goals given the perceived lower spend

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

levels or the tradition that other functions managed this spend (e.g. advertising controlled by marketing) . Further, in many organizations there is a lack of coordination or communication between business units regarding indirect spending.

As purchasing functions become more digitalized, it will be easier to do a detailed organization-wide spend analysis to identify possible volume leveraging opportunities for such spend across the organization.

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232.

Why is it so important to have senior executive support when implementing an indirect spend procurement strategy? How can a buyer collect and use this data?

Answer: 

 

With support from executive level management, purchasing can: 1) elevate the level of attention to indirect spend, 2) show users that such spend now falls under the purchasing department and, 3) obtain the necessary resources required to better manage this increasingly important spend.

High level support is necessary because the indirect spend category is often fragmented across many different units.

Senior management can provide incentives and goals across the organization to have purchasing managers increase their focus on indirect spend because the savings can be substantial.

233.

Discuss the importance of defining expectations and using standardized contracts when sourcing professional services. How is this different from sourcing direct materials and components?

Answer: 





Standardized contracts ensure that all facets of the services contract requirements are detailed in the agreement. Doing this avoids many future surprises and insures that the funds will be spent wisely.

Compared to goods for which quality is defined by a specification; quality levels for services are established by a ―statement of work‖ that details what is expected from the service provider. A poorly written statement of work is characterized by ―scope creep‖ (like a change notice on goods). The extra charges from a supplier to meet scope creep adds substantial revenue and profit to the service provider. Often once the contract is issued, the buyer would incur a high switching cost and therefore must stay with the incumbent supplier for the duration of the project.

Statements of work are much more difficult to write than specifications for services and, hence, harder to pin down exact needs. Through discussions with internal customers, it is important to define expectations to focus the service provider on the actual need at hand and agree on how the service provider’s performance will be monitored and measured

234.

What is a power spender? Why is collaborating with power spenders key to effective indirect sourcing?

Answer: 





Power spenders are key individuals who control or influence substantial indirect spending and services; Training provides awareness of effectively managing indirect and services spend.

Examples of power spenders of indirect spending include maintenance supervisors and IT managers. For services Human Resources departments, and certain executives such as the Legal and Engineering Departments.

Training should include information on generic strategic sourcing strategies, policies on competitive bidding and ethical treatment of suppliers. Training will differ from firm to

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firm but the key is conveying the tactics and strategies employed by supply management for effectively controlling both indirect and services spend. [return to top]

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

235.

Why do you believe there has been so much emphasis on technology in supply management in the twenty-first century?

Answer:    

Software tools assist the supply manager (SM) to improve efficiency, effectiveness, and productivity.

Technology enables increased capabilities with the same or fewer personnel.

Technology permits faster reactions to demands from the users of SM services.

Rapid access to timely and reliable data permits more informed decision making.

236.

How can purchasing make use of social networking software (e.g., Facebook and LinkedIn) to improve their daily job performance?

Answer:    237.

Increases the understanding of the salesperson’s personality, network connections and interests thus facilitating the sales process.

Provides a forum to quickly exchange information between professional purchasers with similar business challenges and interests.

Allows a purchaser to join interactive forums to interact with and observe others’ experiences and then ask or answer questions.

Why are ERP systems not typically considered a means to improve external integration?

Answer: ERP systems were originally designed to facilitate the integration of all internal operations within an organization. They were not designed to provide external linkages to suppliers or customers. This has changed as now larger ERP providers e.g. SAP have developed or acquired software to enable supplier and customer integration 238.

Discuss the seven-stage ERP implementation model. What are some of the barriers that would hinder or lengthen actual ERP implementation time?

Answer: 



Discovery: o Core team assembled and grouped into work streams of the functional areas being implemented.

Design: o The new processes to be developed, and process flow maps are created. o Document RICE elements – records, integrations, conversions, and enhancements. o Fit/gap analysis conducted. o Define and document the detailed ERP process.

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









System build-out: o ERP system is configured with functional parameters and customized business data.

Testing: o Involves several iterations of testing business processes and system RICE elements. o Unit testing and quality assurance testing involve executing scripts isolated to a specific business process or RICE element.

Training: o Often performed by outside consultants o Train-the-trainers program Cutover: o The organization takes greater ownership of the ERP system o The need for internal champions to drive the implementation o Involves changing people’s behavior and ensuring that behavioral change actually occurs. o Resolve the remaining issues. o Increase safety stocks of materials, parts, and components to help ensure less disruption.

Post-cutover support: o Core implementation team resolves post-implementation problems and software failures. o Conduct process upgrades.

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239.

Find at least three blog sites that would help purchasers in managing their spend, sourcing globally, using e-sourcing, and outsourcing or offshoring.

Answer:    

Some typical blog sites for supply managers are Spend Matters and Determine.com which is managed by the esourcing forum.com.

CPO rising is another blog site with articles and case studies. https://cporising.com Students will be able to fine many more These blog sites help supply managers remain current with the discussions and trends in the field.

Companies must deploy newer technologies or risk becoming less competitive in the market space.

240.

How would you advise your CEO who commented: ―We don’t have the resources to deploy newer technologies such as artificial intelligence or 3D printing in supply management.‖ Answer: Demonstrate to the CEO the cost saving and increased capability benefits of incorporating new technologies to reduce operating costs, improve profit levels and/or provide a competitive marketplace advantage.

241.

Why do you believe that reverse auctions are so controversial? Why would you participate in one as a seller? Why would you organize one as a buyer?

Answer: 

  

The controversy revolves around the singular focus on price. This creates a perception in the seller’s mind that the buyer is ignoring all other non-price issues and the value-added services provided in the past. The seller will remind the purchaser how they -delivered on a rush basis at no extra cost, held firm on pricing below market levels, etc.

Sellers feel the technique weakens the collaborative buyer-supplier relationship and allocates business solely on price.

As the non-incumbent seller who is on the outside looking in, you could win all or part of the buyer’s business and have a new customer.

The buyer can achieve significant cost reduction through price competition. o Realize a price near or slightly below true market value. o Gain time savings in competitive bidding which then frees up buyer’s time to focus on other higher level and more strategic activities.

242.

Find an article that provides an example how firms are using and managing ―big data‖ to improve their business model.

Answer: Answers will vary by student.

243.

Explain the concept of expressive bidding and find a software provider who has this tool.

Answer:

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    

A software tool that extends the traditional bid process to permit suppliers to configure their bids in any number of alternative ways that align with their competitive strengths.

It is based on combinatorial math which gives the suppliers the flexibility to bid on part or all the bid package.

Using mathematical algorithms, the buyer can quickly evaluate the different supply and cost scenarios provided by competing sellers.

Addresses price and non-price factors.

Suppliers provide bids on the elements of the contract that emphasize their internal strengths.

244.

Discuss the difference between traditional software models delivered by application service providers (ASPs) and Software as a Service (SaaS) delivered via the cloud.

Answer:  

ASPs are stored on the buying organization’s physical server and must be maintained by the organization.

SaaS is maintained by the service provider and can be accessed by the buying organization’s computers and mobile devices on demand.

245.

Imagine walking into the purchasing office of the future. How might you go about completing your tasks for the day using future supply management technologies?

Answer: The student should mention some of the newer technologies such as: 1) robotic assistants, 2) AI driven support and decision-making assistance, 3)ability to rapidly calculate large data sets through supercomputing capabilities, 4) virtual reality tours of supplier facilities from the office, 5) 3D printing of spare parts reducing need to source MRO items and 6)complete supply chain traceability through advanced Blockchain. [return to top]

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

246.

What is a purchasing performance measurement and evaluation system? Why would a firm want to measure purchasing performance?

Answer: 

Definition: A formal, systematic approach to monitor, assess, and improve purchasing performance



Why measure purchasing performance? o Measure contributions to company competitive performance. o Support better decision making. o Support better communication. o Provide performance feedback into how well purchasing is meeting its objectives. o Motivate and direct behavior.

247.

What are the three types of performance benchmarking? Which type is most used by the purchasing function?

Answer: Answers will vary by student, but the majority will probably like operational benchmarking.

The three broad groups are below and include:  



Strategic benchmarking – e.g. percentage of spend electronically enabled; supplier diversity spend, etc.

Operational benchmarking- cost per purchase order; savings as a percentage of total purchase expenditures; purchased inventory accuracy; Cost to spend a dollar (Purchasing budget divided by Total purchase expenditures) etc.

Support activity benchmarking-e.g. warranty claims due to purchase material; liability claims due to safety issues, etc.

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248.

What is the difference between effectiveness and efficiency measures? When should a firm focus on purchasing effectiveness measures? When should a firm focus on purchasing efficiency measures?

Answer: 







Effectiveness measures: o Refers to the extent to which, by choosing a certain course of action, management can meet a previously established goal or standard, e.g., ―doing the right things‖.

Efficiency measures: o Refers to the relationship between planned and actual resources applied to achieve a previously agreed-upon goal, e.g., ―doing things right‖.

When to focus on effectiveness measures: o Relate more to purchasing’s strategic contributions, e.g. gains from supplier development, early supplier involvement (ESI) in product design, etc.

When to focus on efficiency measures: o Tactical, day-to-day issues such as cost of a purchase order, number of requisitions processed on S2P system, material rejections per buyer, etc.

249.

Discuss the reasons why purchasing measures need to focus on outcomes versus administrative measures and provide examples of these more strategic measures as compared to more traditional ones Answer: Historically purchasing has focused on administrative measures such as the cost of a purchase order, average spend per buyer, total number of purchase orders issued, etc.

The move to a more strategic orientation requires more outcome focused measures. For example, the financial outcomes such as increased revenue are related to how procurement actions enable shortened time to market on new and existing product designs.

These outcome focused targets are based on world-class performance levels and will bring value to an organization.

Actual improvement needs to be compared against pre-established targets or objectives.

250.

Consider the following statement: ―Some firms still rely on measures that harm rather than support purchasing’s long-term performance objectives.‖ What does this mean? Provide examples of performance measures that might result in a negative longer-term effect on purchasing performance.

Answer: 



Short-term focus on buyer workload, low prices, and the number of supplier orders expedited creates a focus on short term issues and neglects the long-term impact of programs that have potential to elevate the function and firm.

Long term issues include sustainability, revenue and EVA measures, time to market targets, and supplier innovations incorporated into products and services.

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251.

What is the benefit of developing performance measures that focus on cost versus purchase price?

Answer: Measuring total cost provides an indicator of the overall impact of the purchase on the firm.

Purchase price is but one element of total cost. Depending on the purchase, cost includes many elements such as number and cost of poor quality, impact of missed delivery dates, premium transportation costs etc. Suppliers need to be measured on more than just purchase price to provide a measure of their overall value for the firm.

252.

Discuss the major difference between cost-reduction and cost-avoidance measures. Why have some described the reported savings in cost-avoidance measures as ―soft,‖ ―funny money,‖ and ―easy to manipulate‖? When can purchasing take credit for a legitimate cost reduction or cost avoidance?

Answer:  





253.

Cost-reduction is defined as paying less than previously paid for a product or service. It is calculated by taking (new price – prior price) multiplied by estimated volume.

Cost-avoidance is the difference between a price paid and a potentially higher price (which may have occurred if purchasing had not obtained the lower price through a specific effort or action) Cost-avoidance doesn’t increase a firm’s total profit, but either maintains the same level or limits the amount of decline through the actions of purchasing to minimize the impact of higher prices via delaying the timing or reducing the amount of the proposed increase.

Purchasers must carefully track cost avoidance actions, and accurately report the tangible benefits associated with either delaying the date of the proposed increase or reducing the amount. On commodities having visible published prices, cost avoidance is verifiable, often based on cooperation with suppliers who are asked to share the pain of a price increase by reducing their internal costs. Another verification tool is comparison to a published index such as the Producer price index Discuss the Importance of EVA to purchasing and supply

Answer: 

 

EVA is a measure of a company’s financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash basis, e.g., the marginal difference in the rate of return over a company’s cost of capital.

EVA = ((Net operating profit after taxes- (total assets-current liabilities)) * (weighted average rate of return) Purchasing can influence EVA through revenue growth, cost reduction, and improved asset utilization. o Contributing to an increase in product/service offering and enhancing customer value o Improving productivity associated with the internal cost structure and affecting external suppliers’ cost structure through design and innovation

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o

Reducing and simplifying the number of assets and improving utilization rates and throughput velocities of inventories

254.

Assume you are responsible for developing a benchmarking program. Describe how you would go about establishing the benchmarking process. Would artificial intelligence (AI) help you in this process (why or why not?)

Answer: 





The process for developing a benchmarking program involves the following steps: o Planning  Determine which products, processes, or functions to benchmark.  Identify benchmark target.  Determine data and information requirements. o Analysis  Determine how and why benchmark target is better.  Determine how to include benchmark company’s best practices.  Identify future trends and performance levels. o Integration  Communicate benchmark findings to key personnel.  Establish operational targets and functional goals based on findings. o Action  Include personnel responsible for carrying out plans during formulation of action plans.  Develop a schedule for reviewing and updating goals and plans.  Develop a system to communicate benchmarking progress. o Maturity  Continuous use of benchmarking at all organizational levels  Continuous improvement resulting from the benchmarking process Critical issues o Benchmarking must become an accepted process internally and not just another fashionable program or fad. o Personnel must view performance benchmarking as a permanent part of a system that establishes goals, objectives, and competitive strategies. o Executive management must support the process. o Firm must be willing to commit the necessary legwork to data gathering. o Managers must view benchmarking as a way to learn from outside companies and improve internal operations on a continuous basis.

Artificial Intelligence could help with identifying firms that are leaders in the performance areas you wish to benchmark. They can also help review the current literature and practices for benchmarking. Once the target firm is identified, AI can provide information about the firm and its key officers. It can help you edit letters to the targeted firms.

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255.

Why is it sometimes advantageous to benchmark performance against a noncompetitor?

Answer:    

256. data.

Best-in-class performance may not exist in your industry or competitors may want to preserve their perceived advantage by limiting the amount of information they release.

Generating novel ideas as a non-competitor may approach key processes differently.

Benchmarking competitors may allow your firm to meet existing competition but not leapfrog it.

Noncompetitors will be more likely to cooperatively provide assistance and often agree to a benchmarking of each other’s practices Discuss the different uses a manager has for purchasing and supply chain performance

Answer:    257.

Recognize high-performing suppliers and compensate outstanding performance of purchasing personnel.

Use to reward better performing suppliers with additional or future new business.

Historical record used to track effectiveness of suppliers and purchasing personnel What is SCOR and how can it be applied in purchasing?

Answer: 

 

The original SCOR model recognized six major processes: Plan, Source, Make, Deliver, Return, and Enable. SCOR DS takes these processes further with the following updates: o The addition of orchestration element recognizes the importance strategy, business rules, technology, and human resources to provide an overarching direction that builds a more efficient supply chain. o Delivery was split into Order (customer orders) and Fulfillment to give greater detail and emphasis to those activities, practices, and metrics. o Make became Transform, to widen its applicability to more types of manufacturing and service providers.

SCOR DS is quite an extensive upgrade for SCOR. Nineteen SCOR practices are included in the model with approaches on how to measure and evaluate each one.

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DISCUSSION QUESTIONS The following are discussion questions that do not appear in the text, PPTs, or courseware (if courseware exists) – they are for you to use as you wish. You can assign these questions several ways: in a discussion forum in your LMS; as whole-class discussions in person; or as a partner or group activity in class.

258.

What future trends do you believe will have the biggest impact on purchasing or supply and supply chain or networks?

Answer:     

The evolution of real-time inventory Tariffs and price volatility The impact of AI on the workplace Increasing use of social media Others

259.

Given the predictions described in this chapter, what do you think the future purchasing organization will look like? Do you agree or disagree with any of these predictions?

Answer: Answers will vary by student, but may include the following:  

More people will work from home.

There will be greater use of AI in the workplace.

260.

What are some of the primary skills that purchasing and supply chain managers will need to be successful in the future?

Answer:               

Supply market knowledge Strong analytics Ability to query AI systems Competitive market structure Price and cost analysis Ability to leverage digitized data systems and artificial intelligence to carry out scenario planning Analytical capabilities Broad business knowledge and multidiscipline skills Working knowledge of business fundamentals Ability to work in and manage teams Knowledge of foreign cultures, business practices, and languages Collaborative working style Leadership ability Lead virtual teams Willingness to develop self-knowledge and ability to work with teams

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261.

What will the role of Generative AI, cybersecurity, big data, and analytics be in supporting purchasing and supply chain management activities?

Answer:    

Improved managerial decision making such as better, faster, more accurate information access Greater integration of supply chains Increased supply chain visibility and cross-enterprise transparency On demand data access through cloud computing

262.

Why will there be an increase in using suppliers to obtain product and process technology?

Answer:     263.

Rapid rate of changing technologies Earlier outsourcing decisions Globalization and growth in emerging markets Single companies cannot keep up with all types of technological change Why will global sourcing increase? Or will it?

Answer:  

Data capture and analysis is getting cheaper due to digitization, application of large language models, neural networks, and analytics.

Types of information: o Supplier performance data o Supplier capabilities o Product visibility o Marketplace data o Competitive data o Cost and price data

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264.

Do you believe the total number of suppliers within a typical firm’s supply bases will increase or decrease? Why? Answer: Answers will vary by student but may include the following:   265.

The implications of tariffs may shape global trade.

There may be more national trade between Mexico and Canada and US rather than Asia as a low-cost source.

What will an integrated supply chain look like in terms of key elements?

Answer: Answers will vary by student but may include the following concept.  266.

Likely will decrease as supply base consolidation occurs, however, the need for alternative sources to mitigate risk is also important.

What is the role of purchasing in leading sustainability efforts?

Answer: Nearshoring, reshoring, premium transportation, more responsive suppliers, smart inventory management.

10. What will an integrated supply chain look like in terms of key elements?

Answer:           

Continuous outsourcing or insourcing decisions, location analyses and rebalancing, changing cost structures, trade regulations Great focus on risk management Enhance supply chain integration and collaboration with strategic suppliers and customers.

Greater internal collaboration and integration Focus on value Shared strategies Requiring suppliers to take a greater cost and value management role Providing common customer-focused measurements and metrics Developing an e-sourcing and supply applications portfolio A leading role in sustainability requirements and practices Shared talent management

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11. How can more innovation from suppliers be achieved? What is required?

Answer:          

Intellectual property ownership Longer-term commitments or contracts Project management Strategic alignment and risk or reward Trust and communications Voice of the customer and supplier Company’s innovation culture Innovation metrics, supplier capabilities, and performance assessments Cost vs. innovation Stage-gate processes, e.g., from concept to suppliers

12. What is the possible role of purchasing in leading sustainability efforts?

Answer:      

Leading sustainability initiatives Buying decisions based on sustainable criteria Considering more sustainable suppliers and materials Elimination of non-sustainable materials, suppliers, and processes Scope 3 emissions Human rights and labor rights is a regulatory issue

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