RSM370H1 Lecture Notes - Lecture 11: Supply Chain, Sell Side, Transaction Cost
Document Summary
Direct materials: go directly into production, included in cost of goods sold, any delay in procurement will delay production, bought in large quantities. Low processing cost relative to value of transaction. Indirect materials: used for maintenance, repair, and support operations, included in selling and general administrative expense, delay in procurement has less direct impact on production, high transaction cost for each individual unit. Processing cost is high relative to value of transaction: low value, high importance, lithium is critical in battery production but is not expensive. General items: low value, low importance, indirect materials. Strategic items: high value, high importance, should develop long-term relationship with supplier to ensure availability and try to reduce cost. Bulk purchase items: high value, low importance, consider purchasing through auction. Opportunities for extracting value: make existing transactions more efficient, aggregation. Aggregate on buy or sell side for market power.
