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    General Business Questions

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    1. What is the number one reason for global sourcing
    2. What is the biggest risk in buying foreign made goods and services and what problems might incur
    3. When are letters of credit typically required and how are they classified
    4. What is total cost of ownership
    5. What are three components of the total cost of ownership
    6. What is downtime costs, cycle time costs, conversion costs, non value added costs, supply chain costs.
    7.What is variable margin pricing
    8. What are the six catergories of cost and which ones are used in making an incremental cost analysis
    9. What are the five tools a supply manager can use to conduct a price analaysis
    10. What are the three sources of cost data
    11. What are the three categories of compensation arrangements
    12. What is the potential danger of using a fixed price redetermination contract
    13. What is the structure of a cost plus fixed fee contract and what shoud a supply professional do to ensure the legitimacy of the final cost.

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    Solution Preview

    The response addresses the queries posted in 2971 words with references.

    //In this paper, we will discuss the most significant reason of global sourcing , like what is the important thing which leads companies to sourcing globally and how it is profitable for the companies.//

    One of the most promising reasons of global sourcing is cost saving. Most of the companies save up to 30% when global sourcing is processed; it is also known as off-shoring. This global sourcing also helps companies to not just prevent excessive cost consumption, but also developing the global relations with Multinational Companies. It also enables development of local supply chains and local content regulations. External creation of value is around 2/3 to 3/4 of the manufacturing costs. Therefore, Global Sourcing can target approximately 20%, when applied to machinery, whereas it can target up to 70% in Electronics.

    //In this area the risk regarding buying the foreign goods and services is discussed and also how it adds to the expense if they are ordered or brought from outside the home nation//

    Buying goods or services from foreign, or to invest in other countries, companies, and individuals may need to first buy the country's currency with which they are doing business. Also, buying a foreign item always costs much more than the product or service of own country and transportation that hikes the cost of that item.

    Generally, exporters prefer to be paid in their currency or in U.S. dollars, which are generally accepted all over the world. When Canadians buy oil from Saudi Arabia, they may pay in U.S. dollars and not in Canadian dollars or Saudi Riyal, even though the United States is not involved in the transaction. So, many a times it happens that the products and services are always convenient to buy from the home country only.

    //In this part letter of credit their classifications like Revocable letter of credit, irrevocable letter of credit, Standby letter of credit, Revolving letter of credit being explained//

    A Letter of Credit (LC) is a document issued by bank that essentially acts as an irrevocable guarantee of payment to a beneficiary, which means that if one has not performed his obligations then the bank pays. The letter of credit can also be the source of repayment of the transaction meaning that the exporter will get paid with the redemption of the letter of credit.

    Classification of letters of credit:

    Revocable letter of credit: LC can be revoked by the issuing bank without the agreement of the beneficiary.

    Irrevocable letter of credit: It cannot be canceled or amended without all the parties' agreement.

    Standby letter of credit: Guarantee of payment. If the beneficiary does not get paid from its customers, it can then demand payment from the bank by forwarding the copy of the invoice that was not paid and supporting documentation.

    Revolving letter of credit: It is established when there are regular shipment of the same commodity between suppliers and customers. It eliminates the need to issue an LC for every transaction.

    //Here the concept of Total Cost Ownership system is being explored from where it is generated and its viability of purchase//

    TCO (total cost of ownership) is a type of calculation designed to help consumers and enterprise managers assess both direct and indirect costs and benefits in the purchase of any software component. The intention is to reach at a final figure that will show the effective cost of purchase. TCO analysis, if done would be beneficial even when a computer is bought: for example, the greater cost price of a high-end computer might be one consideration but one that would have to be balanced by adding likely repair costs and earlier replacement to the purchase cost of the bargain brand.

    TCO analysis originated with the Gartner Group several years ago and since then developed in a number of different methodologies and software tools. TCO analysis performs calculations on extended costs for any purchase - these are called fully burdened costs. For the consumer's purchase of a computer, fully burdened cost may include costs of purchase, repairs, maintenance, and upgrades. For the business purchase of a computer, fully burdened costs can also include such things as service and support, networking, security, user training, and software licensing. The TCO has to be compared to the Total Benefits of Ownership (TBO) to determine the viability of the purchase.

    // In this portion the three core components of TCO (Total Cost of Ownership) in which the brief description of the three major components Acquition or physical hardware costs, Operating costs, Personnel costs is being thrown light on.//

    The three key components to TCO (Total Cost of Ownership) calculations:

    · Acquisition or Physical Hardware Costs

    · Operating Costs

    · Personnel Costs

    Bit of explorations of these components is as follows:

    Acquisition Costs: Acquisition or Physical Hardware costs cover the cost of ...

    Solution Summary

    The response addresses the queries posted in 2971 words with references.