Operations and Supply Chain Management The Core

430 OPERATIONS AND SUPPLY CHAIN MANAGEMENT
exhibit 13.1
The Sourcing/Purchasing Design Matrix
Short
Request for
proposal
Spot
purchase
Low
Specificity
Refers to how
commonly available
the material is and
whether substitutes
can be used.
Request for
proposal (RFP)
A solicitation that
asks for a detailed
proposal from a
vendor interested in
supplying an item.
Vendor managed
inventory
When a customer
allows the supplier to
manage the inventory
policy of an item or
group of items.
Contract
duration
Long
High
Strategic
alliance
Request for bid
and
reverse auctions
Transaction costs
Electronic
catalog
Vendor
managed
inventory
Specificity
Specificity refers to how common the item is and, in a relative sense, how many substitutes
might be available. For example, blank DVD disks are commonly available from
many different vendors and would have low specificity. A custom-made envelope that is
padded and specially shaped to contain a specific item that is to be shipped would be an
example of a high-specificity item.
Commonly available products can be purchased using a relatively simple process. For
low-volume and inexpensive items purchased during the regular routine of work, a firm may
order from an online catalog. Often, these online catalogs are customized for a customer.
Special user identifications can be set up to authorize a customer’s employees to purchase
certain groups of items, with limits on how much they
can spend. Other items require a more complex process.
A request for proposal (RFP) is commonly used
for purchasing items that are more complex or expensive
and where there may be a number of potential
vendors. A detailed information packet describing
what is to be purchased is prepared and distributed
to potential vendors. The vendor then responds with
a detailed proposal of how the company intends to
meet the terms of the RFP. A request for bid or reverse
auction is similar in terms of the information packet
needed. A major difference is how the bid price is
negotiated. In the RFP, the bid is included in the proposal,
whereas in a request for bid or reverse auction,
vendors actually bid on the item in real time and often
using Internet software.
Vendor managed inventory is when a customer
actually allows the supplier to manage the inventory
policy of an item or group of items for them. In this
case, the supplier is given the freedom to replenish
the item as they see fit. Typically, there are some
INSTEAD OF SENDING PURCHASE ORDERS, CUSTOMERS ELECTRONICALLY SEND
DAILY DEMAND INFORMATION TO THE SUPPLIER. THE SUPPLIER GENERATES
REPLENISHMENT ORDERS FOR THE CUSTOMER BASED ON THIS DEMAND
INFORMATION.
©Charlie Westerman/The Image Bank/Getty Images
Low
High