CPSL cheat sheet

Total Cost of Ownership (TCO) = acquisition price + transportation + inspection + inventory carrying + quality/defect + disposal costs; award decisions on price alone ignore post-purchase cost.

Inventory carrying cost rate typically 18-25% of unit value per year; components include capital, storage, obsolescence, insurance, and taxes.

Economic Order Quantity: EOQ = sqrt(2DS/H), where D = annual demand, S = order cost per order, H = annual holding cost per unit.

Reorder point = (average daily demand x lead time in days) + safety stock; safety stock rises with demand variability, lead-time variability, and target service level.

ABC classification by annual dollar volume: A items ~ top 10-20% of SKUs but ~70-80% of spend; C items the reverse; effort and controls scale with class.

Kraljic matrix axes are profit impact (spend volume, value added) and supply risk (scarcity, substitution, entry barriers); quadrants are non-critical, leverage, bottleneck, strategic.

Leverage items: many suppliers, high spend -> competitive bidding and volume consolidation. Bottleneck items: few suppliers, low spend -> secure supply, qualify alternates, buffer stock. Strategic items: high both -> long-term partnership and joint planning.

Supplier selection criteria weight framework: quality, cost, delivery, service, technical capability, financial health, and sustainability; weighted scoring must use criteria defined before bids open.

Price/cost analysis distinction: price analysis compares bids without examining cost elements; cost analysis examines labor, material, overhead, and profit build-up (should-cost).

Learning curve: each doubling of cumulative output reduces unit labor hours by a constant percentage (typically 80-90%); used to forecast supplier price reductions.

Purchase requisition -> sourcing -> purchase order -> receipt -> invoice match -> payment is the standard procure-to-pay (P2P) flow; three-way match compares PO, receipt, and invoice.

Spend under management = addressable spend covered by contracts or active sourcing governance; maverick (off-contract) spend is the leakage metric.

Contract types by risk allocation: firm-fixed-price shifts cost risk to supplier; cost-reimbursable shifts it to buyer; time-and-materials and incentive-fee contracts sit between.

Early supplier involvement (ESI) moves supplier input to design phase; cost of design change rises sharply after design freeze, so ESI targets concept and prototype stages.

Cross-functional sourcing team roles: purchasing (commercial), engineering (specification), quality (acceptance), finance (cost), operations (demand), legal (terms).

Supplier relationship management tiers: strategic (executive sponsorship, joint roadmaps), preferred (performance reviews), transactional (self-service catalogs).

Supplier scorecard dimensions: quality (PPM, defects), delivery (on-time-in-full), cost (price variance, cost-down), responsiveness, and compliance/sustainability.

e-Procurement enablers: eRFx, reverse auctions (price-driven, suitable for leverage items with clear specs), punch-out catalogs, and e-invoicing.

Demand integration: sales and operations planning (S&OP) links forecast to procurement; forecast error propagates upstream as the bullwhip effect, dampened by information sharing and shorter lead times.

Make-or-buy analysis compares fully loaded internal cost (including fixed cost allocation and capacity constraints) against total cost of outsourcing plus transaction and risk costs.

Maturity progression: transactional purchasing -> strategic sourcing -> integrated supply management -> supply chain orchestration; each stage adds scope, analytics, and influence.

Change management model (Kotter): urgency, coalition, vision, communication, empowerment, short-term wins, consolidation, anchoring - sequencing matters more than individual steps.

Stakeholder mapping by power and interest: high power/high interest = manage closely; high power/low interest = keep satisfied; low power/high interest = keep informed.

Center of Excellence vs. shared services: CoE owns standards, methods, and capability building; shared services executes transactional volume work under service-level agreements.

Talent development levers: competency models, category-specific training, rotation, certification, and succession planning for category managers.

Digital transformation enablers: spend analytics, source-to-pay suites, supplier portals, contract lifecycle management, and AI-assisted classification; adoption depends on data quality and process standardization.

KPIs that signal transformation progress: spend under management, contract compliance rate, savings realization vs. identified, cycle time from requisition to PO, supplier diversity spend, and P2P automation rate.

Risk governance: supply risk register with probability and impact scoring, dual sourcing for bottleneck items, business continuity plans, and periodic financial health monitoring of key suppliers.

Ethics and compliance: conflicts of interest disclosure, gift and hospitality thresholds, separation of buying and payment duties, and supplier code of conduct enforcement.

Savings validation: cost-reduction claims must be measured against a baseline price with a defined volume and period; avoid crediting volume-driven or market-driven price movement as negotiated savings.

Should-cost model = direct material + direct labor + manufacturing overhead + SG&A + profit margin; gaps between should-cost and quoted price indicate negotiation room or specification difference.

Volume discount breakpoints should be evaluated on incremental (marginal) total cost, not average unit price, to avoid accepting a larger lot that raises total cost.

Supplier financial screening: current ratio, quick ratio, debt-to-equity, and cash conversion cycle; deteriorating receivables days is an early warning of supplier distress.

Single vs. dual sourcing rule: dual source when supply risk is high and volume supports split; single source when scale economies or tooling investment dominate.

Specification levers before price negotiation: standardize, relax tolerances, change material, consolidate part numbers, and shift to commercial off-the-shelf items.

Contract price adjustment clauses (index-based escalators) should reference a published, verifiable index and a defined base period.

Three-way match exception types: quantity variance (receipt vs. invoice), price variance (PO vs. invoice), and timing; each requires a defined tolerance and resolution owner.

Blanket PO vs. contract: a blanket PO commits quantity/price over a period; a contract sets terms without volume commitment; call-off releases draw against blanket agreements.

Category strategy output should include spend baseline, supply market analysis, sourcing wave plan, negotiation approach, and implementation timeline.

Supplier onboarding data set: legal entity, banking details, tax status, certifications, insurance, and code-of-conduct acknowledgment; validate banking changes by callback to prevent fraud.

Inventory positioning across the chain: decoupling points (push-pull boundary) determine where forecast-driven and demand-driven flows meet.

Total lead time = internal processing + supplier lead time + transit + receiving/inspection; reducing internal processing time often costs least.

Quality integration tools: PPAP/first-article approval, control plans, corrective action requests (8D), and supplier audits tied to risk tier.

Business case structure for a transformation initiative: baseline metrics, target metrics, investment, benefits timing, risks, and dependencies on IT and finance data.

RACI assignment prevents orphaned tasks: exactly one accountable owner per deliverable; consulted and informed roles do not approve.

Balanced scorecard perspectives (financial, customer, internal process, learning/growth) applied to supply management keeps cost KPIs from crowding out capability and risk metrics.

Negotiation power derives from BATNA strength, information asymmetry, time pressure, and switching costs; improve BATNA before entering talks.

Team development stages (forming, storming, norming, performing) imply that cross-functional sourcing teams need explicit role clarity early.

Communication cadence for transformation: weekly working team, monthly steering committee, quarterly executive review with realized-benefit reporting.

Benchmarking caution: compare spend ratios (procurement cost as % of spend) only against firms with similar category mix and vertical integration.