Ford Dealers to be Seeing Any Color - So Long as it is Black

Henry Ford, the father of the over 100 year-old motor company that bears his name, is credited with saying, "Any color - so long as it's black." While he was speaking of the not-so-wide-range of paint colors available for the Model T from 1915-1925, the color is always highly sought after on accounting books.

With struggling economic times, more and more car dealers are seeing red these days. But black is the color Ford is hoping their franchisees will see soon. To assist in this effort, one step Ford is taking is to drastically downsize their dealers. With a hope to reduce the 500 franchisees in the top markets by one-third, Ford plans to meet and discuss plans with their dealers at least twice over the next few months. It is hoped that Ford's offering of financial incentives to relinquish the Ford franchise will be the needed spoonful of sugar to help the medicine go down.

Although it is a tough situation, Ford is committed to their enhancing their high-end Lincoln brand and hoping to elevate their remaining dealers' ability to be profitable. The reduced dealer network in strategic markets, should enable them to do both.

Ideally, the personal meetings and the financial incentives will stay the hand of negative publicity and be an effective way to assist the terminated dealers, their businesses, and the surrounding community.

Sample Test Question: Task 1-F-6
Supplier management professionals should be acutely aware of, and plan carefully for downsizing as it impacts a community, for all of the reasons below EXCEPT:

A) Many states have passed community impact laws that define processes for plant downsizing or shutdown.
B) Negative publicity can harm the buying organization.
C) Negative publicity can harm the supplier.
D) Phase-outs need to be avoided during the organization's high volume periods.

Love at First Site

If only a trip to the faraway, beautiful city of Sydney, Australia was in my posted job description. But so far, that location has alluded me. However, for a few members of the United States Nuclear Regulatory Commission (NRC), Sydney, Australia is exactly where they are headed. And for a good reason. A site visit to Peninsula Minerals is in order for the NRC team later this month. Peninsula Minerals is seeking a license for a uranium recovery project. The visit to their Sydney site is expected to produce several benefits.

First, the NRC team will be reviewing the license to ensure it contains all the technical detail necessary for approval. The in-person visit is expected to speed up the licensing process. Peninsula Minerals expects they will make an impression on the NRC team, and that this will all ultimately lead to an approved license.

Although the visit to some place as exotic as Sydney, Australia sounds incredible, the site visit will probably only last a couple days at the most. And a fair amount of time will be spent in a uranium recovery project site, not at the Sydney Opera House. As glamorous as some trips may sound, supply professionals are keenly aware of the importance of and work involved in a site visit. Such trips are not synonymous with a vacation.

Sample Test Question: Task 1-F-5

Which of the following are factors that should be considered while conducting a site visit:

A) Housekeeping, process/material flow, employee morale and measurement of KPIs
B) Cost/benefits of a site visit and selection of the site visit team
C) Performance audits, documentation, and metrics
D) Quality, cost, design, service and cycle-time reduction

A Fix for Six?

Six Sigma is a quality program that has continued to gain following since its inception at Motorola in the early 80's. With the original goal of defect-free manufacturing, Six Sigma has expanded beyond the manufacturing floor and infiltrated nearly every department in the business world. However, it is not without it's stumbling blocks.

According to QuikSigma, a software company in the business of making Six Sigma principles a reality, only 30% of graduating belts ("Green Belts", "Black Belts", etc.) are proficient in using statistical analysis. AND...they still elect to solve problems the 'old way'. With the hope of replacing the typical complex statistical software packages used by Six Sigma graduates, QuikSigma's software is learned in 1/3 the time and the resulting Six Sigma projects, although completed in half the time, are still comprehensive with all the rigors expected.

Although many belts may not fully employ the statistical rigors of the Six Sigma program, they are still seeing phenomenal results. QuikSigma expects that with the implementation of their simpler software solution, results will skyrocket even further.

Sample Test Question: Task 1-F-4

Janet is looking to improve and control various processes in her organization, with the goal of ultimately improving business performance. In order to reach this specific goal, each of the following may be helpful EXCEPT:

A) ISO 9001
B) Six Sigma
C) ISO 9004
D) BATNA

"Make the World Safe for Diversity" John F. Kennedy

They may not be the biggest among their competitors, or have the deepest funding, but minority- and women-owned businesses are a substantial part of US automakers' supply bases. In an effort to support businesses that tend to locate in the heart of America and often employ an otherwise disadvantaged population, the auto industry is setting the bar for doing business with this particular supply group.

Ford has a goal of directing 10% of their annual supplier spend to socially or economically disadvantaged suppliers. Such suppliers represent 404 of their 6,800 suppliers. In 2009 they spent $2.7 billion with minority- and women-owned businesses and they will exceed that goal in 2010.

About half of that or 5% of GM's total spend is with minority- and women-owned businesses which make up over 10% of their supply base.

Chrysler leads them all with over 13% of their spend being directed to businesses owned by minorities and women.

All of this does not happen magically by running a spend report at the end of each year. These automakers have personnel and programs dedicated to nurturing and growing this unique supply group. However, when it comes to awarding contracts, there is no favoritism. These suppliers must compete and win the bids on their own.

For more information see: http://www.detnews.com/article/20100930/AUTO01/9300368/1148/Suppliers-owned-by-minorities--women-persevere

Sample Test Question: Task 1-F-3

Possible reasons to develop and implement a supplier diversity program include all of the following EXCEPT:

A) To be eligible to do business with the government
B) To enhance your company's competitive advantage
C) To offer charity in giving business to suppliers that would not otherwise qualify for a contract
D) To support local and global initiatives

A Spoonful of Medicine with a Healthy Dose of IP Protection

iPierian is a leading biopharma- ceutical company that is on the forefront of developing therapies for disease using patient-derived induced pluripotent stem cells (iPSCs). Never heard of iPSCs before? Well, iPierian may be changing that. Have no idea how iPSCs work and what they do? Well, don't feel too badly, only a few of the medical elite truly understand the science behind the pluripotent stem cells. And after a recent round 2 of investment funding totaling $28 million, iPierian is more intent than ever of keeping their specific knowledge on the subject out of the hands (or brains) of their competitors.

Proof of their intense need for intellectual property protection is evident in their announcement today. On September 30, 2010, iPierian announced that they have appointed Wayne Montgomery, J.D., as Vice President, Legal Affairs and Intellectual Property. Wayne has spent 20 years in protecting intellectual property. And he has spent twenty years doing so in the biopharmaceutical industry. This makes him more than a so-so choice for iPierian.

Whether or not iPierian will make definitive strides in developing successful therapies for neurodegenerative diseases, including spinal muscular atrophy (SMA), amyotrophic lateral sclerosis (ALS) and Parkinson's disease is largely yet to be seen. As a society we certainly hope such scientific achievements are within the reach of these talented teams. And as these landmark therapies are developed, in order to repay investments, fund additional research, and secure future profits, intellectual property will remain of vital importance to iPierian.

Sample Test Question: Task 1-F-2

Samantha is the purchasing manager for iABC, a high-tech company on the forefront of developing cloud based software services. Intellectual property is the largest asset the company owns. Samantha works with suppliers that provide software design and development services that augment iABCs services and products. In an effort to protect the intellectual property of her organization, which of the following is the LEAST appropriate time for her to have a supplier sign a nondisclosure agreement:

A) Prior to sending out an RFP that contains proprietary information
B) Prior to allowing a visit with engineers at her company's facility
C) Prior to awarding a purchase contract
D) Prior to initiating an ESI program

Holiday Builders Paints Sherwin Williams as a Partner

Unless you are an HGTV designer or an aspiring Matisse, paint might not be that exciting to you. But today, Barry Holland, director of purchasing and national accounts at Holiday Builders is excited.

"We are thrilled about our new partnership with Sherwin-Williams," he says.

Today, September 29, 2010, Sherwin Williams announced an exclusive agreement with Holiday Builders. With 3,300 stores in North America, Sherwin Williams is a giant in the paint, stain, coating, and wall and floor covering business. Those are products regularly found on the shopping lists of Holiday Builders, who is known for their quality residential home building in the United States' southeast.

Paints and coatings provided by Sherwin Williams will be of strategic importance to Holiday Builders. By taking advantage of Sherwin Williams' National Account program, Holiday Builders expects operational efficiencies including: consistency, standardization, consolidation, customized specifications, and simplified supplier transactions. Holiday Builders expects to see cost savings too, by partnering with a supplier that can provide national buying power. Yet with 1,400 reps nationwide, local service is a top benefit of the relationship as well.

HGTV and Matisse aren't alone, such a list of benefits and and advantages to the relationship with Sherwin Williams, seems more than a valid reason for Barry Holland's excitement over paint.

Reference press release: http://www.prnewswire.com/news-releases/sherwin-williams-now-exclusive-paint-and-coatings-supplier-to-holiday-builders-103993218.html)

Sample Test Question: Task 1-F-1

Based on information from the article above, Sherwin Williams is best described as what type of supplier to Holiday Builders:

A) Approved supplier
B) Certifiable supplier
C) Partnered supplier
D) Pre-qualified supplier

In Golf Times and Bad Times

The Just-in-Time (JIT) inventory philosophy has been touted as a model of efficiency, its development being credited to Taiichi Ohno in Toyota production facilities in the 1970's. But golf supply professionals aren't all on board. Long before Ohno was streamlining car assembly lines, there was a saying, "The early bird catches the worm." And some golf courses are favoring early ordering over just-in-time models for their pesticide purchases. ⁽²⁾

Manufacturer rebates often entice golf courses to order pesticides months before they are needed. The largest benefit is that the rebates are a direct cost savings to the organization. However, other advantages are being noticed as well. Payment terms for early orders are often more favorable than would otherwise be seen in this industry. Scheduling is a convenience too. Pesticide treatments are scheduled long in advance which reduces the chance of conflict. When emergency pesticide treatments are required, they are easier to arrange since ordering and payment have already occurred.

The early ordering is helping suppliers too as they see more normalized sales patterns and have plenty of lead time to prepare their inventories.

So it seems that as long as enticing rebates and payment terms continue, the early birds on the golf course might not just be the guys carrying their sticks, trying to get in a round before work.

2) http://www.golfcourseindustry.com/gci-0910-cover-early-order-just-in-time.aspx

Sample Test Question: Task 1-E-3

The core of the JIT philosophy is:

A) cost effectiveness.
B) faster delivery times.
C) elimination of waste.
D) supplier cooperation and performance.

Hot and Bothered Over Botched UDOT Bid Process

Summer is supposedly over, but things are heating up along the Utah political landscape. On the front burner is questioning of the selection process in which Provo River Constructors (PRC) was awarded the $1.1 billion I-15 CORE project contract, the largest contract ever awarded by Utah Department of Transportation (UDOT).

Details provided by UDOT confirm that a scoring matrix was used by Evaluation Teams to rank and rate the three short-listed bidders. Following the Evaluations Teams' review and scoring, Flatiron-Skanska-Zachry (FSZ) was favored as the preferred supplier. However, a second review was conducted by the Selection Recommendations Committee (SRC). This was not an entirely independent review, but, at least in part, a review of the Evaluation Teams' scoring. The SRC agreed with 24 of the 27 ratings provided by the Evaluation Teams. They made "upward adjustments" to 3 of the ratings in favor of PRC which resulted in a new winning supplier: Provo River Constructors.

"There was no pattern of bias, but it looked like it," John Njord, UDOT deputy director and chief engineer said. ⁽¹⁾

Following a December 2009 announcement of the winning bidder, Flatiron-Skanska-Zachary filed a protest. In January 2010 they followed up with supplements to the protest. A week and a half after that UDOT provided PRC with a Notice to Proceed. By February 2010, the situation was resolved with FSZ in which a $13 million bid protest settlement from UDOT to FSZ was agreed upon.

A governor's race in Utah, in which campaign contributions, favoritism, and private meetings are in question has recently brought the $13 million payoff to light. They may be saying good-bye to summer along Utah's Wasatch Front, but some are as uncomfortable as a boy in his wool church coat on a hot and sticky July afternoon.

(1) http://www.heraldextra.com/news/transportation/cars/article_b6ed3bb3-44af-5885-87bd-8f7e6e547775.html

Sample Test Question: Task 1-E-2

Scoring supplier responses to proposals is often done via a decision matrix where cross-functional team members independently review and rank suppliers. The supply management professional will set a range for scores (e.g. a range of 1 to 5). If a greater fineness of data is required, a supply management professional would be wise to:

A) Widen the range for scores.
B) Narrow the range for scores.
C) Increase the number of suppliers to be included in the bid.
D) Decrease the number of suppliers to be included in the bid.

Schumer Heads Directly to the Source

On September 23, Senator Chuck Schumer proposed legislation that would provide tax incentives to companies that bring jobs back to the United States which have been previously outsourced. According to Schumer (Dem-NY), "Manufacturing jobs have left New York at an astounding rate for places that have no work rules, no environmental rules and no wages rules. It's time to level the playing field."

This seems to be a long standing issue with the Harvard educated politician that is known for his loyalty to local needs of his constituents almost as much as he is known for his love of the spotlight. And no one would disagree that he has a passion for job creation . Interestingly, Schumer was loudly outspoken against Adidas last year when they announced they were terminating their contract with New York based American Classic Outfitters. Such a move was in line with the company's supply chain consolidation as they revealed plans to outsource the production of NBA jerseys overseas.

Whether or not yesterday's proposed legislation will find an approved and permanent place among tax incentives for businesses is yet to be seen. It is expected to be considered by the Senate as soon as next week.

Sample Test Question: Task 1-E-1

Advantages to international sourcing can include ALL of the following:

A) Higher quality, lower prices, wider range of goods, greater competition
B) Higher quality, lower prices, wider range of goods, same modes of communication
C) Applicable laws, lower prices, wider range of goods, greater competition
D) Payment processes, lower prices, wider range of goods, greater competition

Safety Doesn't Happen by Accident

Amputated fingers, pounded body, crushed skull, broken back, amputated hand. This gruesome list is not a summary of scenes from a Fright Night movie at a teen-age Halloween party. It is a few of the serious physical injuries, two of which were deadly, reported by OSHA (Occupational Safety and Heath Act) in just the past 30 days.

Each of these 'accidents' finds origins in serious, willful safety violations and has resulted in citations, legal ramifications, and fines issued to organizations across the United States in September 2010. OSHA defines a willful violation as "one committed with plain indifference to or intentional disregard for employee safety and health." OSHA fines vary and reflect the severe and recurring nature of hazards. They are based on the hazard potential and, perhaps surprisingly, not entirely based on the seriousness of a resulting accident. Many, many fines are issued even without episode of serious accidents or injuries.

Interestingly, in the list above, an employee death situation resulted in a total fine of only $119,500, while an amputated hand situation resulted in fines exceeding $3 million. The company facing the amputated hand $3 million fine, is accused or removing and 'tinkering' with safety equipment on machines. They are also accused of altering factory settings to speed up machines to enhance production numbers. These safety violations raise somber ethical concerns which should be addressed by supply management personnel under existing contract language with such suppliers or when analyzing potential suppliers.

Sample Test Question: Task 1-D-3

Which of the following is NOT a purpose of the Occupational Safety and Heath Act (OSHA):

A) Provide rules for conducting investigations of accidents
B) Implement record keeping requirements
C) Require research on safety-in-the-workplace issues
D) Ensure supply management includes "compliance with law" clauses in contracts with suppliers

This Week on E! (E as in 'Environment'): The Clean Air Act Turns 40

Editors Note: Despite some of the divisive themes in this message, in truth The Clean Air Act has been a result of continued bi-partisan and corporate commitment to our world and the air we breathe. By the way, how many famous faces did you see?

And speaking of famous faces...Uma Thurman, Matt Damon, Vince Vaughan and Kelly Ripa aren't the only ones turning 40 in 2010. The Clean Air Act celebrates 40 years in 2010 too - this month in fact. The numbers being reported in conjunction with the 40 year mark and celebration are impressive. Consider that in its first 20 years, the Clean Air Act is credited with saving 200,000 lives, and preventing 672,000 cases of bronchitis and 21,000 cases of heart disease. 843,000 avoided episodes of asthma are also a result of the Clean Air Act's first 20 years. Compare that to Vince Vaughan's and Matt Damon's first 20 years in which neither had yet landed a decent acting role.

But much like Vince and Matt, the biggest role for the Clean Air Act probably didn't come until its next 20 years either. Consider the impact on our air since 1990 in which now 1.7 million toxins have been removed, some pollutants are down as much as 41% and since 1980 lead is down 92% in our air.

The Clean Air Act doesn't just boast fame, but fortune too. It has been suggested that for every dollar spent on these laws, we have seen a return for $40 in value. Despite its many accolades, I have yet to see any Academy Awards or Emmy's handed out to this landmark legislation. But don't let that lessen in your mind the star power of these environmental laws.

Sample Test Question: Task 1-D-2

Examples of environmental laws at the US federal level include ALL of which of the following:

A) Clean Air Act, Clean Water Act, Robinson-Patman Act
B) Clean Air Act, Clean Water Act, Foreign Corrupt Practices Act
C) Clean Air Act, Clean Water Act, Toxic Substances Control Act
D) Clean Air Act, Clean Water Act, Freedom of Information Act

I Scream, You Scream, We All Scream for Social Sourcing

If you aren't convinced that social responsibility in sourcing isn't important to companies, then you haven't been talking to the business associates at Ben & Jerry's. The socially conscious ice cream manufacturer based in Vermont touts using ethically conscious products from sustainably grown vanilla to fair trade cocoa.

This values-led business takes social responsibility to a level most companies cannot touch. It's throughout their decades-old mission statement. Their employee's are challenged to a once annual personal "Social Mission". And, of course, social and ethical responsibility is integral to their product sourcing as well.

All of this adds up to an amazing company offering some sweet desserts and advertising campaigns -ads like the one I found in my Sunday paper two days ago (see above.)

Sample Test Question: Task 1-D-1

It is no longer sufficient for organizations to simply state their standards. They must demonstrate communication, implementation, training, and tracking of standards within an organization. This enhanced expectation is demonstrated in adhering to (a) code(s) of ethics based on which of the following:
A) ISO standards
B) Sarbanes-Oxley Act
C) MSDS
D) ISO standards and Sarbanes-Oxley Act

Paying the Price of Bribery

It sounds like something from a Hollywood script. Brothers securing suppliers for sensitive yet lucrative Vietnamese military and government contracts. They become embroiled in a bribery scheme. The U.S. government is on to them. Only this time they don't get away after an intense car chase and gunfire battle to retire on some half-deserted island. The company is dissolved. Two brothers are sentenced to prison terms. And a third brother and a partner are given probation.

This real-life drama played out in Philadelphia last week. Three employees and one partner of Nexus Technologies were charged with paying over $250,000 USD in bribes to Vietnamese officials with the intent of securing desired equipment contracts. Their exact crime? Violating the Foreign Corrupt Practices Act which prohibits personal payments to foreign officials.

Sample Test Question: Task 1-C-3

Examples of US federal regulations restricting international trade include all the following:

A) U.S. Foreign Corrupt Practices Act, International Anti-Bribery Act of 1998, Anti-boycott legislation, Export Administration Act
B) U.S. Foreign Corrupt Practices Act, International Anti-Bribery Act of 1998, Uniform Commercial Code, Export Administration Act
C) U.S. Foreign Corrupt Practices Act, International Anti-Bribery Act of 1998, Uniform Commercial Code, Anti-boycott legislation
D) U.S. Foreign Corrupt Practices Act, Sarbanes-Oxley Act, Anti-boycott legislation, Export Administration Act

Chang Chang for Cultural Exchange

Today there is dancing and drumming at N.C. State University. It is not exactly a fancy football tail gate party. And it doesn't find its roots in a fraternity week-end bash. It is a University Haitian Celebration aimed to increase cultural awareness of the small island nation. The event highlights Haiti's culture, both the good and the bad: the art, the music, and the child slavery. While raising awareness the students and event coordinators are also raising funds to rebuild schools and support Haitian children.

Cultural awareness is a fantastic opportunity in a universtiy setting, and its an important aspect of working with international suppliers as well. While working in China I prepared myself for the important event of business card exchange. I have sat around conference tables in the United States where people deal out their business cards like a blackjack dealer in Las Vegas. However, the exchange of business cards is an important transaction in China. When giving your card, you repeat key information listed and hand it to the recipient with both hands. The recipeint will receive it with two hands, confirm your name and perhaps other information and you will each briefly hold the card before the exchange is complete. Yes. Four hands on one tiny business card. But it works. And it feels good too.

When accepting a business card from a Chinese business professional, the exchange should include repeating information repeated to you and a two-handed acceptance. Following the exchange, never shove the card in your wallet or bag. And certainly do not write on the card. Although either is common or even perfectly acceptable in the United States, both actions would be considered rude and offensive in China.

Although its probably a good time in Raleigh, N.C. today, you don't necessarily have to drum and dance to increase your cutural awareness of another country. What are some cultural differences have you observed?

Sample Test Question: Task 1-C-2

Sam, a purchasing professional, is traveling to another country for a site visit to what will hopefully be a strategic supplier to his company. His manager has tasked him with wrapping up the deal and getting contracts signed before returning to the United States as the team is anxious to begin using this supplier for a key component. When Sam arrives he is greeted by the senior manager and taken to a welcome dinner that suprisingly appears to be in his honor. The next morning he enjoys a long and thorough tour of the plant site. However, that afternoon, when he pulls out contract papers, the senior manager quickly changes the subject and refuses to even look at the documentation. He instead focuses on more personal topics. The next morning before Sam flies back to the United States he is presented with a beautiful small statue. Sam returns home with a meaningful gift, and seemingly new friends, but no signed contract. His manager believes Sam has failed and the trip was a waste of effort.

Which of the following MOST LIKELY summarizes Sam's international experience:

A) Sam was visiting a supplier that had no interest in doing business with his company, yet placed a high value on being kind to visitors.

B) Sam was visiting a supplier that had no interest in doing business with his company, yet enjoyed visiting with and learning from business professionals from other countries.

C) Sam was visiting a supplier that may have an interest in doing business with his company, but was in country that places a high value on establishing personal relationships before determining whether or not they want to do business with someone.

D) Sam was ineffective in asserting himself and the goals for his trip and probably failed to secure the strategic supplier.

The Powerful Force of a Global Work Force

Imagine a mandated 2-3 hour break each afternoon in your work day. In the summer this break may increase to up to 6 hours. Envision a minimum of 30 days paid vacation each year. In addition, you get a paid bank holiday off each month too. Christmas bonuses are required in your employment contract. (Yes, your employment is protected by a contract.) But Easter bonuses too!? If you are laid off, visualize the assurance of 45 days of severance for every year you worked for your employer. This may sound fantastic and surprisingly generous. However, a year ago, in Spain, such an employment contract would be considered fairly standard. Yet, in order to remain competitive, the country is being forced into major labor reforms.

International sourcing affords businesses opportunities to capture benefits using the best labor force, in the most ideal setting. In this increasingly macroeconomic situation, as countries compete for business, they are forced to be competitive on a global scale.

At one end of the spectrum are countries with human rights issues, child labor, and limited wages that place their labor pool in dire safety circumstances, and a reduced ability to sustain themselves on meager wages.

At the other end are countries with powerful unions, an exceedingly high number of paid holidays, and complex labor laws that make it difficult and expensive for a company to have flexibility with their workforce. One such country at the latter end of the spectrum is Spain.

Spain boasts very powerful and loyal unions. They have hampered change in the past. But a dire financial situation is driving a force of change by the government. Earlier this year, despite strong opposition, Spain's government pushed through a landmark labor reform bill in an effort to make their country's labor pool more attractive to businesses. Major strides were made such as: 1) Reducing severance pay requirements, 2) The ability to reduce hours instead of firing employees, 3) Bonuses for hiring the unemployed, and more.

The prime minister, Jose Luis Rodriguez Zapatero, hopes these reforms will ease the difficulty and risk of job creation in his country and thereby improve the economy. With the highest unemployment rate in the Eurozone - topping well over 20% - as of August 2010, nearly 4 million people are seeking employment in Spain. While unemployment has risen slightly since labor reforms were passed, seasonal employment fluctuations account for that increase, and the increase for August was lower than the previous year.

Although there is no reason to not be hopeful, whether such changes are going to help the struggling country are largely yet to be seen. Trade unionists are banding together in a couple weeks for a general strike on September 29th to express their outrage. Employment contracts may never go away entirely in Spain, but enhancing the competitive nature of the labor force is most likely an excellent, albeit painful, step in the right direction.

Sample Test Question: Task 1-C-1

When considering a global work force, supply managers should consider the following:

A) Labor skills, labor practices, global marketing, cultural differences
B) Labor skills, labor practices, global marketing, brand management
C) Labor skills, labor practices, brand management, cultural differences
D) Labor skills, labor practices, human rights, cultural differences

Polar Coaster Ride: International Currency Markets Divide

Following the gains and dips in the currency market is a bit like trying to keep an eye on your best friend as they ride the Fahrenheit roller coaster in Hershey Park. Neither is very easy, you're always a few seconds behind, but watching it is a lot easier on the stomach than living it.

A quick glance at the headlines from the past 24 hours indicates the international currency markets are alive, on the move, and dividing their constituents.

For months, China has been criticized and warned for a perceived significant undervaluing of their currency, and the matter may have come to a head:
Pressure Mounts on China as Yuan Hits New High

After unavailing efforts to pester China on their undervalued currency, today one country took matters into their own hands:
Soros Applauds Japan Intervention to Weaken Yen

Another country takes a different approach:
US Sets Steep Duties on China Seamless Steel Pipe

But China may refuse to be so easily bullied:
Trade War: China Fires First Shot, Hints It Might Dump US Bonds

Whether or not it all eventually gets sorted out peacefully, the markets have immediately responded:
Dollar Soars as Japan Acts to Curb Yen's Strength

And some are jealous at their lack of benefit:
EU: Yen Intervention More Effective If Coordinated

Obviously, reading just the headlines, although it tells an interesting story, over simplifies it a bit. Being able to accurately hedge on exchange rates is an art, a science, or a crapshoot, depending on who you ask. Either way, purchasing professionals will be forced onto the roller coaster ride, as their organizations continue to expand into global markets. The most informed will face the currency markets and choose a wise course of action as they attempt to maintain profit margins in exchange rate fluctuations.

Sample Test Question: Task 1-B-5

The most effective way to maintain the profit margin in exchange rates when making a purchase is to:

A) Negotiate the contract to purchase in the supplier's local currency
B) Negotiate the contract to purchase in the buyer's local currency
C) Hedge on the exchange rate
D) Hedge on the exchange rate or negotiate the contract to purchase in the buyer's local currency

Bullish Inventory Levels for July: An Opportunity?

It seems some of the biggest news on the US economy comes from a July report of business inventories. They are up! A full 1 % rise in inventories has optimists looking for a brighter sales record to continue as well. Inventory levels were slashed during the recession and have been slowing expanding in the last year. However, the 1% July inventory increase was significantly larger than expected.

Business inventories are managed carefully as carrying costs have a compelling impact on the bottom line. Carrying costs include finance, insurance, security, spoilage, storage, handling, property taxes and other related costs associated with carrying inventory. These costs are soemtimes divided into four categories: finance costs, ownership costs, risk costs and overhead costs. From these it is clear the cost of inventory goes far beyond the initial product cost from the supplier.

Opportunity costs are a factor for business inventory levels as well. Although not treated as a cost on a financial statement, the decisions companies make with where to invest their capital send distinct messages to economists and industry experts. It provides an insight into companies' decision making processes and may indicate future economic conditions. It is the opportunity cost with inventory that adds importance to the July inventory report. Rather than investing capital in other areas, businesses are betting on sales and as such are beefing up inventory levels. This provides a hopeful insight into a possible continued economic expansion.

Sample Test Question: Task 1-B-4

Masford Company's board has been presented with options for business expansion. One option is to expand inventory levels across all product lines, which will require borrowing at 9% interest. Another option is to invest in a new product with an expected return of 12%. Mashford Coporation's board decided to invest in additional inventory this month. Using the opportunity cost approach, the cost to finance the inventory is:

A) 12%

B) 9%

C) 3%

D) 21%

'Landing' the Next Deal

In an economy where the housing market is claimed to have been one of the industries hardest hit, many US builders are not disuaded from identifying new opportunities. In July 2010 new home sales were at the slowest pace since they were first tracked in 1963. However, according to John Burns, an industry consultant, builders are snatching up land in bidding wars despite the market conditions. Or is it because of the market conditions?

Although the number of offers may be down, many land transactions are still receiving multiple offers. Most likely in part to new tax laws in their favor, many builders are surprisingly cash rich right now. Builders have spent over $90 million on land in the Phoenix area so far this year. The posh Hasentree planned golf course community in North Carolina recently sold for over $23 million. And the shopping continues from Florida to California. Such a buying spree is certainly in part attributed to the soft market and resulting "deals" on land. Additionally, land is a limited commodity, so some builders may fear missing these chances for inventory acquisition. And although not the best reason for doing most anything, the fact that everyone else is doing it holds weight in this industry too.

Builders investing in land now, when deals are to be had, makes sense from a cost avoidance perspective. As an effort to prevent or reduce price increases, costs avoidances, though often less tangible than cost savings, can have a concrete impact on profitability. Especially in a business where land is generally 20% of the cost of the final product. Of course, builders would need to build and sell houses on the bargain land to realize significant profitability. And John Burns questions whether that will be possible in 2011 or 2012. If Mr. Burn's fears are confirmed, builders may be jeopardizing future profitability on an opportunity of cost avoidance today.

Sample Test Question: Task 1-B-3

Peter is the supply manager for We Build, a large residential builder. He has been given a budget and tasked with reducing costs on raw land acquisitions. Peter begins the cost reduction process through data mining efforts including anaylyzing a variety of spend reports on land purchases. These include historical purchases by his company, as well as articles and reports available on an industry level. Following the analysis, Peter identifies several areas of cost saving opportunity for We Build, including purchasing prime foreclosed real estate directly from banks. Peter immediately begins negotiating with the banks to secure several land purchases at significant dicsounts even for the current market. Upon completion of the acquisitions, Peter reports the acquisitions and associated cost savings to his management, and to the Finance Department so that budgets can be adjusted accordingly. However, upon receiving his report, the Operations Director at We Build was not pleased with Peter's efforts. The most likely cause for the director's disapproval is:

A) The Operations Director realized Peter failed to give credit to market conditions for his cost savings success.

B) The Operations Director did not place value on the accuracy of Peter's data mining efforts.

C) The Operations Director was not contacted as an internal stakeholder prior to the negotiations with suppliers.

D) The Operations Director does not value cost avoidance as much as cost savings.

iPad Equals No I Print, Or So They Hope

Kin Hubbard has been quoted as saying, "The safest way to double your money is to fold it over once and put it in your pocket." In a personal financial situation that may work well, but the truth of the matter is that organizations are forced to spend money to function. However, saving money is often also a top concern. With the bleak economic times, municipalities across the United States are scrambling to reduce costs. A number of them are turning to technology to replace paper costs. Initially it may seem that paper is relatively cheap and a capital investment of high technology may take years for a return on the investment. In reality, some city governments employing high tech cost saving measures are seeing a return in the very first year!

A shocking $18,000 is spent by the Hampton, VA city council in paper costs. An investment of iPads for the city council cost just over $4,000. Redwood City, CA municipality expects to trim more than $30,000 in paper costs after investing $7,000 in iPads.

Whether or not the sleek Apple device will catch on and dramatically reduce traditional government paper usage may yet be confirmed. However, despite some critic's concerns over spending money on such a flashy device, at a quick glance the iPad purchases seem to meet the requirements of an ISM standard on cost control which include: 1) Taking advantage of technological changes, 2) Consider the environment, and 3) Employ job experience.

Sample Test Question Task 1-B-2
The purchasing director at Byberry Municipality is tasked with reducing the paper budget of $15,000 for the upcoming fiscal year by a whopping 50%. He concludes that over half of the paper and copying expenses are a direct result of printing agendas, reading, research and background material for council meetings. After careful consideration with department heads and after a test phase in the current fiscal year, the director goes forward with a standardization plan in the upcoming fiscal year. He purchases netbooks for the entire city council staff to replace all printed meeting agendas, reading, research, and background material for all council meetings. The netbook expenditure is expensed in that fiscal year and totals $4,300. This type of cost savings is considered:
A) Cost avoidance
B) Cost reduction
C) Value engineering
D) Consumption management

"My problem lies in reconciling my gross habits with my net income." — Errol Flynn

This morning the travel headlines begin: "Looking for an exotic fall destination on a tight budget? Fiji might be just the ticket."

Positively ridiculous! In my world a tight budget means eating in instead of eating out, buying shoes at Payless rather than Nordstrom, and reducing the channels on my Dish Network package. A vacation is scarcely a consideration. And one to Fiji? No, not to be found anywhere - not even in the fine print - of my definition of "tight budget".

However, there is a promotion which is evidently placing the alluring island within reach of some families. It is all being made possible because of Air Pacific's children-fly-free offer. Yet a quick review of my budget, followed by double checking my bank account balance confirms my suspicions. No Fiji for our family. Not this fall.

Budgets are not just a realization for families with children. Businesses work within budgets as well. Some may mistake the need for a budget with cash-flow issues. But regardless of the volume of cash flow and/or cash reserves a business (or family) may or may not enjoy, a budget is a critical component for success in any organization.

If you find your budget allows for a Fiji excursion this fall, pack the sunscreen and scuba gear, and enjoy! If such an adventure is not in the cards, then give me a ring and I'll save you a table next to ours at Chuck E. Cheese where we can make a better budget plan for fall 2011's vacation.

Sample Test Question Task 1-B-1
Peter, a supply manger for Quintis Corporation is working with his financial analyst in a new division of their company. Together they are planning strategic purchases for the upcoming year. Last year the new division was provided a small initial capital investment funded by the parent company for initial start-up expenses. Now the only allowed expenditures are based solely on the revenue the new division produces. The new division of Quintis Corporation is being controlled by which type of budget:
A) Zero-based budget
B) Cash-flow budget
C) Line-item budget
D) Program budget