Purchasing Principles Flashcards

Which type of contract places the greatest financial risk on the buyer?

Answer: Cost-plus-fixed-fee contract

Cost-plus contracts reimburse all allowable costs plus a fee, giving the supplier little incentive to control costs, placing risk on the buyer.

What is 'forward buying' in purchasing?

Answer: Purchasing based on expected future price increases or supply shortages

Forward buying involves purchasing larger quantities than immediately needed in anticipation of price increases or supply disruptions.

Which document formally authorizes a supplier to begin work or ship goods after a contract is awarded?

Answer: Notice to proceed (purchase order)

A purchase order (or notice to proceed) serves as the formal authorization for the supplier to deliver goods or begin services.

An organization uses a 'weighted point evaluation' system for supplier selection. What is the PRIMARY advantage of this method?

Answer: It provides a structured, comparable score across multiple criteria

Weighted point systems allow objective comparison of suppliers across multiple factors by assigning importance weights to each criterion.

What is the key difference between a 'specification' and a 'standard' in purchasing?

Answer: A specification describes requirements for a specific purchase; a standard is an established norm used industry-wide

A specification defines what is needed for a particular procurement, while a standard is a pre-established benchmark recognized across an industry.

Which metric measures how quickly a company pays its suppliers?

Answer: Days Payable Outstanding (DPO)

Days Payable Outstanding (DPO) measures the average number of days a company takes to pay its suppliers.

In a competitive bidding process, what is 'bid shopping'?

Answer: Disclosing one bidder's price to competitors to solicit a lower bid

Bid shopping is an unethical practice where a buyer reveals a competitor's bid price to other bidders to drive prices lower.