Procurement Strategy

If you decide to outsource some work to a third party, please decide on which type of contract you may use as we discussed in the lecture (see slides 3, 4, 5). Keep your writing very brief for this homework, a short paragraph is enough.

1) Fixed-priced

2) Cost Reimbursable

3) Time & Materials (T&M)(hybrid)

4) Guaranteed Maximum Share Savings

(*Sometimes, you may think that you do not need procurement at all. But even renting an office space, you would have to need it. So, think carefully whether you need it or not.)

Find the sample under File/HomeworkSamples as needed.

Pentagon Team Instructor Sharon Qi Bus5 140 Sec 15 Dec 2, 2016 Group Homework: Inventory Strategy Water watcher company produce water bottle smart lid manufactures variety of jars and bottles which have plastic or glass base and top lid. Management of huge inventory of bottle/jar bases of different shapes, size and colors as well as different sized lids that fit specific size bottle is a challenging task. We need to look at the SKU wise demand and identify the fast-moving SKUs (Stock Keeping Unit) and their contribution to total revenue. This can be done using ABC analysis which is a pareto priciple based method. It classifies the inventory into 3 buckets: A Category Items Comprise 20% of SKU & Contribute to 80% of $ spend. B Category Items Comprise 30% of SKU & Contribute to 15% of $ spend. C Category Items Comprise 50% of SKU & Contribute to 5% of $ spend. This will help to categorize the inventory and place right control. Inventory record keeping process is also crucial as to reflect the actual inventory in hand and when next order has to be placed. For fast moving goods, like Water Watcher's products, perpetual inventory method is more suitable as it captures all type of changes in the inventory in term of inventory received, inventory taken out for production, inventory transferred to other location, items scrapped. The real-time reflection of inventory is important. As Water Watcher's products are fast moving items, continuous production depletes the inventory in hand and new orders need to be placed based on reorder points for every item. To ensure that the company minimizes the order placing costs, inventory holding cost, it should order as per economic order quantity model keeping safety stock aside to absorb any fluctuations in supply chain and demand. Due to fast moving nature of the products, we can estimate the annual demand for every SKU and hence EOQ (Economic Order Quantity) can be applied to reduce cost associated with inventory