CPSM Exam 1 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Kraljic portfolio matrix

Two-by-two model classifying purchases by profit impact and supply risk into non-critical, leverage, bottleneck, and strategic quadrants, each requiring a different sourcing approach.

Sole source

A supplier that is the only possible provider of an item, typically because of patents, proprietary technology, or unique capability, so no alternative source exists.

Single source

A deliberately selected sole supplier chosen from several qualified candidates, usually to gain volume leverage or a partnership; other qualified sources remain available.

Make-or-buy analysis

Comparison of the total relevant cost and strategic implications of producing an item internally versus purchasing it, including only avoidable fixed costs and qualitative factors.

Reverse auction

Online bidding event in which prequalified suppliers compete by lowering prices within a set time; suited to well-specified, commodity-like items with adequate competition.

Early supplier involvement

Practice of involving key suppliers in design before specifications are frozen, because most life-cycle cost is committed during design rather than during production.

Supplier rationalization

Reduction in the number of active suppliers, often consolidating spend into fewer partners to gain price leverage, lower administrative cost, and closer quality control.

Spend Pareto analysis

Ranking of suppliers or categories by spend volume, showing that a small share of them typically accounts for most of the money and indicating where sourcing effort pays.

Firm-fixed-price contract

Contract whose price is fixed at award and does not vary with the seller's actual costs, so the seller bears cost risk and is motivated to control cost.

Cost-reimbursable contract

Contract paying the seller's allowable incurred costs plus a fee, placing cost risk on the buyer; used when scope is uncertain or costs are difficult to estimate.

UCC Article 2

Model US statute governing contracts for the sale of goods; it fills gaps in the parties' agreement and contrasts with common law, which applies to service contracts.

Statute of Frauds under UCC

Rule requiring a writing to enforce sale-of-goods contracts of $500 or more, with exceptions such as specially manufactured goods or a contract admitted in pleadings.

Liquidated damages

Pre-agreed sum payable for a specified breach such as late delivery; it must approximate a reasonable forecast of anticipated loss or it is an unenforceable penalty.

Termination for convenience

Contractual right letting the buyer end the agreement without supplier fault, usually on stated notice and with payment for work performed plus a reasonable settlement.

Battle of the forms

Situation where offer and acceptance use conflicting standard terms; under UCC 2-207 a contract may still be formed, with gap-filling rules governing the disputed terms.

Three-way match

Payment control comparing purchase order, receiving report, and supplier invoice for quantity and price before an invoice is approved for payment.

Total cost of ownership

Sum of acquisition price plus acquisition, operating, maintenance, training, downtime, and end-of-life costs over an asset's life, less any residual value.

Learning curve

Model in which unit labor hours fall by a constant percentage each time cumulative production doubles; an 80% curve yields 80% of prior hours per unit.

Should-cost model

Bottom-up estimate of what a product ought to cost, built from material, labor, overhead, SG&A, and profit, used to test the reasonableness of a supplier's price.

Price analysis

Evaluation of a price by comparison with other prices such as competitive bids, catalogues, historical data, or published indices, without examining the supplier's cost elements.

Break-even quantity

Volume at which total revenue equals total cost, calculated as fixed costs divided by the difference between unit price and variable cost per unit.

Cost of forgoing cash discount

Annualized financing cost of not taking terms such as 2/10 net 30, computed as d/(100 - d) multiplied by 365 divided by days beyond the discount period.

Life-cycle costing

Assessment of all costs across a product's life from concept and acquisition through operation and disposal, used to compare design or investment alternatives.

Price elasticity of demand

Percentage change in quantity demanded divided by the percentage change in price; demand is elastic when the absolute value of the ratio exceeds one.

ISO 9001

International standard specifying requirements for a quality management system and third-party certified; it certifies process capability, not the quality of specific products.

Process capability index Cpk

Measure of how well a stable process fits within specification limits; 1.33 is a common minimum and 1.67 is often required for critical characteristics.

DMAIC

Six Sigma improvement sequence of define, measure, analyze, improve, and control, targeting reduction of defects toward 3.4 per million opportunities.

Cost of poor quality

Combined prevention, appraisal, internal failure, and external failure costs; failure costs rise sharply the later in the process a defect is discovered.

OTIF delivery metric

Supplier performance measure counting orders received complete and on the promised date, expressed as a percentage of total orders delivered.

Foreign Corrupt Practices Act

US law making it illegal to bribe foreign government officials to obtain or retain business, and requiring accurate books and effective internal accounting controls.

Bid rigging

Antitrust violation in which competitors secretly coordinate bids, rotate winning, or suppress offers to defeat competition; it is treated as per se illegal.

Acceptable quality level

Maximum percentage of nonconforming units treated as acceptable as a process average, used with sampling tables to set sample size and acceptance number.