Part B. Procurement & Outsourcing (Module 0/Course Resource (1)) 1. Review the benefits and risks associated with outsourcing. Answer the following questions. (1) In Kraljic's supply matrix, a "strategic item" has high profit impact and high supply risk. What should be the procurement strategy? (2 pts) (a) Long term partnerships (b) Exploit purchasing power and minimize cost (c) Simplify and automate (d) All answers are correct

(2) In Kraljic's supply matrix, an item with "high supply risk, low profit margin" is: (2 pts) (a) A strategic item (b) A leverage item (c) A non-critical item (d) A bottleneck item

(3) Which one of the following is NOT the benefit/motivation for outsourcing according to the article? (2 pts) (a) Economies of scale (b) Reduce lead time (c) Reduce capital investment (d) Focus on core competency

(4) Based on the reading, which of the following is NOT the risk associated with outsourcing? (2 pts) (a) Conflicting objectives between suppliers & buyers (b) Increase capital investment (c) Loss of competitive knowledge (d) All are the risk

2. Review the two primary reasons for outsourcing, dependency on capacity and dependency on knowledge, and answer the following question Which one of the following statements regarding Toyota's outsourcing practices is INCORRECT? (a) If a component is designed and produced by Toyota's suppliers, Toyota has a dependency on capacity and knowledge. (b) If Toyota has the knowledge and the capacity to produce a component, 100% of the component would be produced internally. (c) If Toyota has the knowledge and designs a particular component but has to outsource most of the production of this part, it means the firm has to depend on its suppliers' capacities. (d) None of the above.

3. Review Example 9.3 (page 286) and solve the following problem to appreciate how procurement strategy could contribute to profit. Suppose GM's revenue =$250 billion, annual spending on parts =$200 billion, and net profit margin was 0.6%. (a) How much can GM increase the profit from a 1.0 percent reduction in annual procurement spending? Show your work. (b) To achieve the same increase in profit in (i) through sales, how much of the revenue increase (in $) must GM have? Show your work.

4. Review Kraljic's supply matrix (Figure 9.4, page 287). Review the current purchasing activities in your own company (or interview an organization), identify two specific purchased items/services, one for "strategic partnership" and one for "simplify and automate" strategy. Describe the nature of the selected items (profit impact and supply risk) and justify the selected strategies.