Expenditures Classification: Using Information To Support Sourcing Decisions (Essay Sample)
Using Information to Support Sourcing Decisions
The purchasing manager has provided the following information for your use:
Spend Category Amount Thousands of US$ Number of Suppliers
Production Machinery 170 2
Maintenance 20 10
Hardware 3 10
Sheet Metal 23 7
Electronic Components 288 5
• Assuming that the amounts shown represent the total annual spend (Amount/Total Amount) calculate the percent of spend for each category.
• Classify each spend category as either low or high complexity and summarize your reasoning.
• Create a 2x2 Risk/Value matrix showing each of the five spend categories placed in either “High” or “Low” Risk group.
• Explain why you placed each item in the selected category.
Submit your assignment as an MS Word document.
• Must be 600-900 words (excluding title page and references page) in length, double-spaced and formatted according to APA style as outlined. Contextual (Level One) headings must be used to organize your paper and your thoughts. Must include a title page with the following:
o Title of paper
o Student's name
o Course name and number
o Instructor's name
o Date submitted
• Must address the topic of the paper with critical thought. Please review and change as needed
• Must utilize a minimum of one scholarly and/or peer-reviewed source in addition to the textbook. Must document all sources in APA style, as outlined.
• Must document all sources in APA style, as outlined.
Must include a separate reference page, formatted according to APA style as outlined
Monczka, R., Handfield, R., Giunipero, L., & Patterson, J. (2016). Purchasing and supply chain management (6th ed). Retrieved from https://www.vitalsource.com
Expenditures Classification: Using Information to Support Sourcing Decisions
Student’s nameCourse name and number
Instructor’s nameDate submitted
Spend CategoryAmount Thousands of US$Number of SuppliersProduction Machinery1702Maintenance2010Hardware310Sheet Metal237Electronic Components2885
The percent of spend for each category
Total amount = 170+20+3+23+288=504
Electronic Components =288/504=57.14%
Spend category-low or high complexity
Purchasing decisions are critical as they affect engineering marketing or manufacturing when seeking to meet a firm’s strategic objectives (Monczka, Handfield, Giunipero, & Patterson 2016). The production machinery is in the high complexity category since it has a huge impact on the firm’s profitability and adds value to output. The failure to procure production machinery will affect operations significantly and there are only two suppliers and if both cannot meet the required specifications this is a risk to the firm. The machinery costs $ 170, 000, which is slightly more than a third of the total money spent.
Maintenance can be categorized as low complexity and is part of the procurement cost and ownership. While maintenance adds value there is no concern that this would affect operations significantly like interrupting core or critical services. However, if maintenance requires specialized skills to maintain activities the costs would be higher. It is necessary to consider the value of the maintenance to operations to assess the complexity drive of procurement costs.
Hardware has the lowest complexity, because it has the least cost at $ 3,000 and there are ten suppliers. As such, the cost per supplier is also the lowest in the hardware spend category. When focusing on the performance improvement, the cost of purchasing the hardware and the value that this has on the firm’s operations is considered. In the case of the hardware, there are low risks of supply disruption having a big impact on the value of production. Other f
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