Cost Reduction & Value Analysis Strategies Flashcards
7 cards from real CPP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Cost Reduction & Value Analysis Strategies flashcards as text
In a make-or-buy decision, which factor most strongly favors the 'buy' option?
Answer: Supplier prices are below the company's internal production cost
When an external supplier can produce the item at a lower cost than internal manufacturing, outsourcing is financially advantageous.
Which of the following BEST represents an 'indirect cost' in a total cost of ownership (TCO) analysis?
Answer: Cost of incoming inspection and quality testing
Incoming inspection costs are indirect costs not reflected in the purchase price but are a real cost of acquiring the good.
A value analysis team determines that a purchased bracket is over-engineered with tolerances tighter than the application requires. The recommended action is to:
Answer: Relax the specifications to allow lower-cost manufacturing
Relaxing unnecessarily tight tolerances reduces manufacturing complexity and cost without sacrificing functional performance.
Price analysis is DIFFERENT from cost analysis in that price analysis:
Answer: Evaluates the reasonableness of price without examining the supplier's cost structure
Price analysis compares offered prices to market benchmarks or historical prices without examining how the supplier built the price.
The '80/20 rule' applied to spend analysis means that:
Answer: 20% of suppliers or items typically represent 80% of total spend
Pareto's principle in spend management identifies the vital few suppliers or categories that drive the majority of expenditure, focusing leverage efforts.
Life-cycle costing (LCC) is most useful in procurement because it:
Answer: Evaluates all costs from acquisition through disposal to find lowest total cost
LCC captures acquisition, operating, maintenance, and disposal costs, revealing that the cheapest purchase price may not yield the lowest total cost.
Reverse auctions are used in purchasing primarily to:
Answer: Drive competitive price reduction through real-time bidding
In a reverse auction, suppliers bid against each other in real time, driving prices downward and creating savings for the buyer.