Sourcing Products and Services Flashcards

A buyer is comparing a domestic supplier quoting $10.40 per unit with an offshore supplier quoting $8.90 per unit. Which approach gives the most complete basis for the decision?

Answer: Calculate total cost of ownership, including freight, duties, inventory carrying cost, quality, and risk

Total cost of ownership includes landed costs, carrying costs, quality costs, and risk costs that a unit price leaves out.

In the Kraljic portfolio matrix, which category has high profit impact but low supply risk?

Answer: Leverage items

Leverage items have many available suppliers and high spend, so buyers can use competitive bidding to get value.

A specialty component has only one qualified supplier worldwide and accounts for very little spend. What is the most appropriate Kraljic strategy?

Answer: Secure supply with buffer stock, longer contracts, or alternative designs

Bottleneck items have low profit impact but high supply risk, so the priority is continuity of supply.

What distinguishes sole sourcing from single sourcing?

Answer: Sole sourcing means only one supplier is available; single sourcing means the buyer chooses one supplier even though others exist

Sole sourcing is forced by the market (for example, patents or unique capability), while single sourcing is a deliberate choice.

A company buys 8 million pounds of resin per year and fears price spikes. Which contract mechanism shares raw-material price risk most fairly between buyer and supplier?

Answer: Fixed-price contract with an economic price adjustment clause tied to a published index

An economic price adjustment clause moves price up or down with an agreed index, so neither party carries all the market risk.

During supplier selection, a buyer gives quality 40%, delivery 30%, price 20%, and service 10%, then scores each bidder. What is this tool called?

Answer: Weighted-point (weighted factor) rating method

The weighted-point method multiplies each criterion's score by its importance weight to give an objective total.

Which document does a buyer usually issue when requirements are complex and the buyer wants suppliers to propose their own technical solutions?

Answer: Request for proposal (RFP)

An RFP invites suppliers to propose solutions and approaches, while an RFQ mainly asks for price on a fully defined specification.