Operations_Final_Paper

In the mkt. share model, the seller is willing to take a lower price because of the potential mass mkt. appeal of the product, resulting in substantially higher sales volumes. (F) Value analysis is traditionally applied to tangible products and as such cannot be applied to services. (F) Nego. is an inefficient way to convey the buyer’s specific sourcing reds and specifications to its supply base. Coercive pwr includes the ability to punish the other party. Which of the following is not 1 of the essential elements to an enforceable contract' Offer, acceptance, consideration, due diligence, n1 of the above. Which of the following is not 1 of the six phases of a project' Precompletion, project definition, preliminary studies, performance, postcompletion. According to the UCC, which of the following is not 1 of the buyer’s rights' Reject defective goods that the seller cannot repair within a reasonable time. Unilaterally cancel a purch. contract for any reason. Revoke acceptance of goods if the buyer discovers defects. Seek a court order forcing the seller to deliver the goods. Retain the right to recover costs and expenses caused by a breach of contract. (F) Price is solely a function of the supply denominator (T) cost. Strategic Cost Mgt. Price analysis- process of comparing supplier prices against external price benchmarks, w/out direct knowledge of supplier cost. Cost analysis- process of analyzing each individual cost element that adds up to the final cost. Total cost analysis- applies the price/cost equation across multiple processes that span two or more orgs. across a supply chain. Strategic Cost Mgt.- by applying above tools, purch.rs can evolve toward a system that seeks to reduce costs across the entire supply chain. Price analysis- external forces cause prices to rise or fall. Competition (cheaper) as well as supply and demand drives prices in the mkt. place. The supplier’s mkt. condition has a major influence on price. Mkt. environment is driven by: number of competitors, relative similarity of products, barriers of entry for new competition. Pricing Strategy of the Seller At times has no relationship to actual cost. Prices can be driven by competition or buyers’ product needs. Mkt. driven price models price volume model- an example of this quality discounts. Mkt.- share model- also known as penetration pricing. Intro price at loss, & increase volume & price later. Mkt. skimming model- usually a monopoly, prices are set to achieve a high profit on each unit sold. Revenue pricing model- revenue into cover costs, used in downturns; supplier concerned with recuperating direct costs. Promotional pricing model- special pricing to induce purch. of product requiring higher priced support services. Ex: selling competition w/ printer, pay for ink later. Competition pricing model- Strategy to determine highest price that can be charged that will still be lower than the competitors (reverse auctions). Ex: eBay, just below the competition. Cash discounts - Incentive discounts to encourage prompt payment of invoices (2% 10/ net 30). Ex: 2 if paid in 10 days if not paid in full. Producer price index- sources for locating producer price indices and standard industrial codes (SIC). Cost Analysis Techniques Opportunities to reduce costs improve when focus shifts from price analysis to cost analysis. In identifying the diff elements of costs, you can identify what is driving the various costs. Cost-based pricing models cost markup pricing model- estimate of costs plus a markup percentage to obtain desired profit. Margin pricing model- cost/ (1-margin rate) = unit selling price. Rate of return price model- Supplier seeks a percentage return on total investment. IE: $300,000 investment (might include R & D, engineering, and other elements) to make 4000 parts with a total cost of $50 each. Unit cost + unit profit = unit selling price. $50 + ((20%) ($300,000)/$4,000)) = $65. Product Specifications Price is greatly impacted in the design stage. Costs go up as firms increase the value added reds. Industry standards should be applied when possible. Early supplier improvement in the design stage can net gains in cost containment. Reverse price analysis when cost data is difficult to obtain, a buyer can develop a price analysis by “guestimating” the cost of a product. Use of internal engineers, historical data, and published data can be helpful in developing a reverse price analysis. When discussing the estimated price analysis with the supplier, consider the following areas of opportunities for cost reductions: plant utilization, process capability (can it do what the customer wants' >1 = good), learning curve effect (time it takes to learn it. “Measurable”. 85% doubling process. 2years- too slow.), suppliers work forces (what kind of ppl. do they have), mgt. capability, purchasing. Break-Even Analysis Helps identify point where revenue equals cost and determine the expected profit or loss at diff production volumes efficiency. Top mgt. uses this technique as a strategic planning tool. Used to estimate expected profit or loss over a range of sales. Specialists use break-even to: Identify if a target purch. price gives supplier a reasonable profit. Analyze supplier’s cost structure. Perform “what if” analysis. Prepare nego. Exhibit 11.12 shows anticipated volume of 9000 units provides adequate profit for supplier at the target purch. price of $10.Net income or loss = (P) (X) – (VC) (X) – (FC) Where: P=Average Purch. Price, X=Units produced, VC=Variable costs per unit of production, and FC=Fixed costs of production for an item. BE = fixed/ (selling-variable). Total Cost of Ownership Four broad categories of cost comp1nts making up the total cost of ownership: purch. price (bought equipment), acquisition cost (transport, ship, setting), usage costs (pwr, insurance), end of life costs (salvage value). Steps in building model: 1. Map the process and develop TCO categories 2. Determine cost elements for each category. 3. Determine how to measure each element. 4. Gather data and quantify costs 5. Develop a cost time line. Collaborative Approaches to Cost Mgt.: The most effective way to reduce costs for strategic commodities is through effective collaboration. Two of the most common approaches to collaborative cost mgt. include target pricing and cost savings sharing.