L4M1 -Scope of Influence of Procurement & Supply

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What is the definition of Procurement?
A Strategic function of a business related to 'obtaining' something. This may be tangible (goods) or intangible (services). The procurement process begins by idenitying a need, and is completed once these goods/services that meet this need are delivered.
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Purchasing
The act of physically ordering and buying something.
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Supply
The infrastructure which ensures that products or services get from the supplier to the customer.
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What is the difference between procurement & purchasing?
Purchasing - physically ordering and buying something. Procurement - a strategic function that involves identifying a need, and delivering the appropriate good or service that meets this need. Procurement also considers price, quality & monitoring of stoc
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What 7 functions fit into Procurement? (ACILPQA) (All Cats in London Prefer Quorn Sausages)
Added Value Cost Inventory Logistics Purchasing Quality Supply
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What is a cost within an organisation?
An amount payable in return for receiving something. REMEMBER: Cost does not have to be monetary. It could be Time, Material, Effort or Opportunity.
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What are the 4 types of organisational cost? (FVDI) (******* VDI)
Fixed Variable Direct Indirect
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What is a fixed cost? & Give examples.
Fixed costs do not change with the output of the organisation. These are costs that must be paid, regardless of the performance of the organisation. - Salaries of Management Team - Insurance - Office Rent
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What is a variable cost? & Give examples.
Variable costs do change, as they are linked with the output of the organisation. They relate to the number of goods produces/sold, or number of services supplied. - Raw materials - Haulage Costs -Wages for hourly-paid workers.
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Fixed and Variable Costs make up the total costs of the organisation.
It can be seen that as output increases, fixed costs remain the same. However, at the same time the variable costs rise and this in turn causes the total costs of the organisation to rise.
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What is a Direct Cost?
Direct costs are associated directly with a job or contract. For example, a construction of an office block could include bricks, cement and labour.
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What is an Indirect Cost?
Indirect costs are not directly associated with a job or contract, they are often referred to as Overheads. Examples of an Indirect costs when constructing an office block would be salary of support staff, rent of head office & mobile phone contracts.
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Summarise the following; Fixed Costs Variable Costs Direct Costs Indirect Costs
The Fixed costs of an organisation do not change. Variable costs do change as they are linked to the output of the business. Direct costs are directly associated with the job. Indirect costs are not directly associated with the job.
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Idenitfy 5 costs that are typical for an organisation.
Capital purchases (buildings, machinery, one-off) Insurance Marketing Raw Materials Research & Development Salaries/Pensions Services Training Utilities
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What will a procurement professional typically do when undertaking a captial purhcase?
- Evaluate potential suppliers - Be involved in preparing the specifications - Review quality and standards - Compare buy or lease options - Research total life cost -Benchmark prices
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What is an invitation to tender (ITT)?
Invitation to Tender A document inviting potential suppliers to quote for business.
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The skill of a procurement professional is to achieve a low cost per product, without having to purchase a quanitity that will result in high inventory cost.
For example; if an organisation were able to obtain a bulk delivery of chilled food products using economies of scale, additional overheads incurred to keep the food at the required tempterature might offset the discounted purchase price.
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Economies of Scale
The trend of cost per unit being reduced as output increases due to factors such as increased bargaining power and the cost of tooling being shared amongst larger numbers of units.
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What is the purpose of the Research and Development Department? How could procurement be involved in this?
Develops new concepts and improves current ideas to ensure an organisation stays up to date and competitive. Through sourcing prototypes or new materials for trials.
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What is a carriage deal?
Negotiations to achieve the best possible cost (logistics).
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What is 'Stock' Procurement?
Includes the following; Raw Materials - products in their natural form, come from Primary Sector. Components - manufactured in the secondary sector. Secondary sector products are items that are used to create a product, i.e. nuts & bolts. Finished Goods -
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What is 'Non-Stock' Procurement?
Non-stock procurement are not stored within an organisation and may be a one-off capital purchase or may be intangible. They are not listed on an organisations inventory. i.e. Cleaning Services, Telephone Systems, Internet Contract
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What is the Tertiary Sector? What is a Tertiary Sector Service?
Industry sector that provides a service. Services delivered to individuals and other industries as the third stage of the production and manufacturing process, such as banking.
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The Procurement Cycle (U M D P D S I B C W C S A) Uncle Mark's Dog Pete Destroyed Sue's Iphone Because Cats Were Controlling Sue's Account
1. Understand Need 2. Market/Commodity 3.Develop Strategy 4. Pre-procurement 5. Develop Document 6. Supplier Selection 7. Issue ITT/RFQ 8. Bid/Tender 9.Contract Award 10. Warehouse Logistics 11. Contract Performance 12. SRM/SCM
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What is Direct Procurement?
The sourcing and supply of a product or service that is directly related to a specific end result, such as the raw materials used to produce a product (Production Proc). Without direct procurement there could be no finished products for sale to consumers
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Describe the 4 different supplier types, based on the Kraljic Matrix. (page 12 for Matrix)
Leverage Suppliers - High cost impact yet low risk impact Strategic Suppliers - both high cost and high risk implications Routine Suppliers - low cost and low risk impact Bottleneck Suppliers - low cost and high risk impact
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What is Indirect Procurement?
Services, tools and equipment that do not form part of the finished product but are required to maintain the business and production process e.g. manpower, stationary, consultancy.
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What is Operations expenditure?
Costs associated with the running of an organisation, such as electricity, labour or waste collection.
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What is a budget?
The primary tool used by an organisation to monitor income and expenditure. It is a financial plan for a set period of time on how much can be spent.
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What are the 2 types of organisational budgets?
CAPEX - budgets that relates to capital expenditure and include capital purchases. OPEX - - budgets that relate to operations expenditure.
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What is depreciation?
The reduction over time in the value of an asset held by a company, often due to wear and tear. An amount for this is treated as a cost in a company's annual accounts.
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What is a Capital Purchase? (CAPEX)
One-off purchases of machinery, land or property. The value of capital purchases reduces over time, reflected in the organisations budget as 'depreciation'. It is a skill of procurement to assess how quickly the asset may depreciate, by working cross-f
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What is Operations Expenditure? (OPEX)
Procurement made by an organisation to ensure the efficient day-to-day running of the business.
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What are the differences between OPEX and CAPEX?
OPEX - ongoing expense, paid monthly or annually, accounted for in the current month or year, low/medium value CAPEX - asset purchased to last a long time, often paid as lump sum or through bank loan, accounted for and depreciating over a period of time
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What is Service Procurement?
Intagible - i.e. cleaning contracts, insurance, utilities An organisation does not physically own a service procurement. Services can be a one-off requirement.
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What are the 5 rights of Procurement? (QQTPP)
-Quantity - Quality - Time - Place - Price
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When do you use the 5 rights of Procurement?
The 5 rights of Procurement are interlinked and should always be considered when making a purchase; they can be used to help achieve value for money, writing contracts/negotiaing, etc.
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What is the 'right quantity'? If not?
Ensuring the most cost effective amount of a product/service is procured. Production could stop, customer needs unfulfilled, warehouses overstocked, price paid could be too high
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If you had an order for 200 parts, why would you ideally place them on one PO instead of individual POs?
- generally the larger the quantity, the lower the price paid (What is this called? Economies of Scale) Why? - Supplier can run machines for longer (cheaper than lots of start ups) - 1 Delivery - 1 Transaction
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What is the 'right quality'? If not?
Quality is about a product/service that meets the needs and expectations of customers, and must be fit for purpose. -unfulfilled customer needs -damaged reputation -potential loss of profits - safety risks
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What is the most common set of standards for quality?
ISO 9000 or ISO 9001 (International Organisation for Standardisation) ISO is a globally recognised standard for quality.
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What is a Product Specification?
Another way for a buyer to ensure that the standard of quality their organisation demands is met. This will include teamwork as it is unlikley they buyer will know all of the information requiref (i.e engineering)
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What are the 7 key things to include on a Product Specification? (DDCMQPQ)
Description Drawing Colour Materials Quantity Packaging Quality
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What are the 2 types of specification?
1. Conformance Spec - details exactly what the good/service will consist of. Ensures the product is exactly as required and there is no variance. 2. Performance Spec - outlines what the good/service is to do or achieve. Opens up the supplier market and
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What are the Advantages of a Performance Specification?
- Short document that is quick to prepare - Simple and cheap to prepare - Allows suppliers to innovate - Allows supplier competition
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What are the Disadvantages of a Conformance Specification?
- Usually a long document that takes time to prepare - Difficult to prepare - Does not allow supplier to innovate - Limits supplier competition
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What it the 'right time'?
Ensuring that any orders and contracts placed state the time where the buying org. requires them.
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What are the consequences of orders not being delivered at the right time?
- Stockouts (could stop production) - Deliveries arriving at wrong time - 'Waiting Time' charges - Supplier relationships
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What is the 'right price'? What 3 things should you consider?
The price of a product/service must be fair and reasonable. - The currency - Tax included? - Incoterms
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What is the 'right place'?
Goods or services need to be delivered to the right place. Failure to do so could result in; - Stockouts
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What is the definition of Incoterms?
International Commercial Terms of Sale that assign costs and responsabilities between the buyer/seller when delivering products.
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What is Net Price? What is Gross Price?
Net Price - excludes Tax Gross Price - Includes Tax
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Total Cost of Ownership
The total cost incurred by owning a product throughout its useful life, including acquisition, use, maintence and disposal. Often used when procuring assets instead of regularly bought items.
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Total Cost of Acquisition
The total cost incurred in acquiring a product from sourcing to receiving and installing. (TCA is part of TCO)
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Define the below Incoterms; Ex-Works (EXW) Free Carrier (FCA)
EXW - 'Named Place' - Buying org (cost to them) arranges collection and delivery of goods from supplier. FCA - 'Free Carrier (named place)' - Supplier delivers goods to chosen destination, whereby a courier chosen by buyer collects and then delivers to fi
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Define the below Incoterm; Carriage Paid to (CPT)
CPT - 'Named place of destination' - goods to be delivered to a destination agreed with buyer. Carriage charge is absorbed in the price of product. Buyer's responsability to insure throughout journey.
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Define the below Incoterm; Carriage and Insurance Paid to (CIP)
CIP - Goods delivered to destination agreed with the buyer. No official carriage bill; carriage and insurance absorbed in product price.
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Define the below Incoterm; Delivered at Terminal (DAT)
DAT - 'named terminal at port/place of destination'. Goods delivered to sea port/airport/train by supplier. Responsibility passed to buyer to arrange the rest of the journey.
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What are the Advantages of using Incoterms? Disadvantages?
- Eliminates ambiguities or inconsistencies of country-specific sales and shipping contracts. - easier for sellers and buyers to identify and manage the costs and liabilities of transporting cargo between source and delivery destinations. - Group C
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What must you consider when working out the total cost of aquisition? (PCILQ) (Pickled Cucumbers In Large Queues)
Purchase Price Carriage and Insurance Lead Time Quality
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What elements contribute to Total Cost of Ownership (TCO)? (TTIOMTSD) TuTu's Insist On Moving To Stage Doors
TCA Tooling Insurance Operation Maintenance Training Storage Disposal
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What is an Internal Supplier?
Suppliers within an org. that are linked by working either on same sit for for the same company as the buyer. i.e. Transmissions & Sodexo are internal suppliers to LH
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What is an External Supplier?
Organisations that are separate business entities from the buying organisation. P&SC Dept. use contracts, service level agreements (SLAs) and KPIs to ensure quality, timescales and quantities considerations are met.
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Define a 'Contract'.
A legally binding agreement between 2 or more parties in which 1 party agrees an action in return for something. A contract is enforceable in law and exists in every commercial transaction.
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What 3 things must be included for a contract to exist and be valid? (ICA)
Intention - all parties must have intention that their agreement can be enforced by civil law Consideration - this is the bargain or exchange aspect/promise by one party for an action by the other. Agreement - In contract law the agreement is created t
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What are the 12 key things to include in a contract? Quirky Dolls Love Quirky Pink Patterned Pencils To Create Little Neat Dots
Quality, Delivery Requirements, Lead Time, Quantity, Price, Payment Terms, Packaging, Term, Currency, Law, Notice, Dispute Resolution
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In addition to ICA, what else must a contract include to be valid?
Names & Addresses of parties entering the agreement, dated and signed by an individual with capacity.
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What does 'Individual with Capacity' mean?
A person who is legally able to enter into a contract because of their appropriate age and state of mind.
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KPIs may be included within an agreement. Why?
To monitor the performance of a supplier, in order to achieve the right quality, timescales, quanitity and place considerations.
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What are the Pros and Cons to including KPIs within an agreement with a Supplier?
+ Improved Supplier Motivation + Improved Communication + Improved Relationships & Sharing of Common Goals - Reduction in quality as suppliers rushing to meet KPIs - Reduction of team work as suppliers focus on their own KPIs
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What is Added Value? What are non-monetary examples of Added Value? pg. 29,30&31 for info, pg 92 for applications
Designed to set a businesses products or services apart from those of its competitors, in order to attract consumers' attention and encourage them to buy. Additional features, Brand, Convenience, Excellent Service, Market Development, Reduced Input Cost
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What is the purpose of a risk matrix?
To assess the severity of potential situations and to prioritise action. Such risks can be recorded on a risk register.
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Define 'Stakeholders'
Any group or individual who can affect or is affected by the achievement of the organisation objectives. All parties who will be affected by or will affect the org. strategy.
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Internal Stakeholders External Stakeholders
People/Groups of People who are directly involved directly with the business People/Groups of People who have an interest in the organisation and could either be impacted by it or have an impact on it.
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Return on Investment
A measure of profitability that indicates whether a gain or loss has been generated compared with the initial cost.
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Mendelow's Stakeholder Matrix
Power = High or Low Interest = High or Low Page 59. for Matrix
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Mendelow's Stakeholder Matrix Description
High Power Low Interest - Keep Satisfied - investors/shareholders High Power High Interest - Manage Closely (all info they need, involved in decision making etc) - senior managers or gov. Low Power Low Interest - Minimum Effort - small customers/supplier
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Ways to Achieve Value for Money
Refer to pg 33
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What is Upstream? What is Downstream?
Upstream - Getting raw materials needed for production Downstream - Processing raw materials into the finished product
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What is the purpose of Supply Chain Management (SCM)?
Aims to reduce costs, improve value and reduce risk. Also provides a competitive advantage over competition by adding value throughout the process.
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Define 'Suppy Chain'.
A system of organisations, people, and activities involved in getting a product or service from the source to the consumer.
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What is a Supply Chain Network (SCN)? What are the 5 general areas included? (E M D C L C)
It is an extension of a supply chain and includes all other parties involved in the process. External Suppliers, Manufacturers, Distribution Centres, Logistics & Consumer Demand.
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What is the difference between Procurement & Supply?
Prcourement is about obtaining products and services in response to a need, while a supply chain is the infrastructure involved in physically getting the products and services delivered. Key difference is the process of supply chain management continues
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Define Logistics
The control of the flow of goods or services between 2 points, making sure people or things are where they need to be at the right time. Logistics is involved at every stage in the supply chain.
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Examples of internal and external logistics?
Internal - Production, Manufacturing, Warehousing External - Distribution, Transport & Retail
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Logistics requires several areas to be managed in order to keep the entire process running effectively. What are they? (Doggy Fun Instantly Worn Out)
Demand Planning - what is required and when? Fleet Management - fleet of vehicles Inventory Management - knowing stock availability Warehousing & Storage - effiecient and correct storage Order Fulfilment
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Define Materials Management
It is a core part of the supply chain and covers handling, inspection and issuing of raw materials, components and finished goods. (think about the process when an item procured by LH arrives)
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Define Material Requirements Planning (MRP) What are its 3 objectives?
Materials and Production Planning System used in manfacturing environments. - ensure materials/parts available - establish when to place orders and schedule deliveries - keep inventory value low
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How does an MRP System work?
Based on demand of the end product Sales Order generates Demand BOM is launched and MRP system calculates the inventory (order amount against stock) Within this calc. MRP will work out MOQ Req is then released onto Procurement
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What does ERP stand for and what is it?
Enterprice Requirements Planning An extention of MRP which includes many more organisational functions such as accounting, HR, manufacturing etc. Can be used as a more cost effective/efficient procurement process and reduce costs for the organisation.
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Define a Stakeholder Internal Stakeholders External Stakeholders
Individuals or groups of people that have an interest in the organisation. People or groups of people who are involved directly with the organisation i.e. directors, employees People or groups of people who have an interest in the org. and could either
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Mendelow's Stakeholder Matrix (page 59)
Keep Satisfied - High Power/Low Interest - Investors Manage Closely - High Interest/High Power - Managers Minimum Effort - Low Power/Low Interest - Small Customers Keep Informed - Low Power/High Interest - Local Activitists
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What is Stage 1 in the Procurement Cycle?
Understanding Need & Developing a High-Level Specification - having knowledge of what customer requires - a need can be tangible/intanglible (goods/services) - description, quantity, delivery time & quality
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What is Stage 2 in the Procurement Cycle?
Market/Commodity & Options -researching/review market for best means to meet need -consider control of buying org and level of risk I.E > can it be made in-house? (higher control and lower risk) or sourced externally? (less control & increased risk) Re
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(Stage 2 Procurement Cycle continued) What 3 things should be considered when reviewing the market?
Economic Situation (could be cheaper abroad) Currency Fluctuations (consider exchange rates) Supply & Demand (price fluctuations)
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What is Stage 3 in the Procurement Cycle?
Develop Stategy/Plan - which suppliers to approach? Local/Global? - evaluate competition (Porter's 5 Forces), does a supplier have monopoly? (cant negotiate) - ITT or RFQ?
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What is the difference between and ITT and RFQ?
ITT - docs sent out to invite bids, formal, suppliers often pre-evaluated, used for purchasing complex products, high-value RFQ - docs sent out to invite quotations, informal, suppliers not usually pre-evaluated, used for standard, regularly used items,
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What is Stage 4 in the Procurement Cycle?
Pre-Procurement, Market Test & Market Engagement This means: Engaging with market, suppliers & consider macro-economic factors to determine how to develop specification, costs, Ts&Cs, right time? Seeking info from int/ext stakeholders on proposed need.
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Define Market Engagement
A process to gain advantage understanding of the market prices or trends.
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What is Stage 5 in the Procurement Cycle?
Develop Documentation
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What 5 things should an ITT/RFQ include?
Description & Spec Quantity Delivery Details Service Level Agreements Ts & Cs
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Define SLA
An agreement between a supplier and a buyer based on quantity, delivery, availability & other measurable criteria
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What is Stage 6 in the Procurement Cycle?
Supplier Selection to participate in ITT/RFQ Optional step relating to decision about which suppliers recieve ITT/RFQ. Evaluating suppliers i.e. pre-qual q'aires (PQQ), audits, visits, RFIs to gather info
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What 10 things does a PQQ generally include? (C F I M Q C H C C C)
- Company History - Financial Activity - Insurance - Membership of Professional Bodies - Quality Accreditations - Capabilities - H&S - CSR Policy - Code of Ethics - Conflict of Interest (COI)
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What are Carter's 10 C's? ref page 71
Competency Capacity Commitment Control Cash Cost Consistency Culture Clean Communication
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What is Stage 7 in the Procurement Cycle?
Issue ITT/RFQ Issue to 'short-listed' suppliers, all docs to be sent at the same time, include deadline
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What is Stage 8 in the Procurement Cycle?
Bid/Tender/Quotation Evaluation - tenders are usually evaluated against a criteria, structured and formal if tender - involvement of cross functional teams -quotation evaluations usually more informal & quicker decision making Consider TCO when evalua
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What is Stage 9 in the Procurement Cycle?
Contract Award & Implementation - advise winning suppliers - finalise Ts&Cs & sign contract - feedback to unsuccessful suppliers
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What is Stage 10 in the Procurement Cycle?
Warehouse, Logistics & Reciept - Warehouse prep for recieving item, is there already a procedure in place for this item? location to store it? - Communicate logistics agreement to warehouse - Reciepting process -> does it need conformance check? unpack
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What is Stage 11 in the Procurement Cycle?
Contract Performance Review - periodically review supplier to maintain required performance and standards - KPIs and Review meetings
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What is Stage 12 in the Procurement Cycle?
SRM and SCM and Development Kraljic Matrix
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Define SRM Define SCM
Process for identifying all interactions with key suppliers and then managing them in a wat that increases the value from the relationship for both parties The management of the flow of goods and services
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What is Stage 13 in the Procurement Cycle?
Asset Management & Lessons Learned - reviewing contract in place, does it still meet needs? i.e. new legislation/standards? - contracts nearing end should be reviewed and feedback sought from stakeholders
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CIPS Procurement Cycle identifies every aspect in the sourcing, buying and supplying process. Each stage links to the next.
Pre-Contract = aspects in procurement cycle that occur before contract awarded (stages 1-8) Stage 9 is Contract Award Post-Contract = aspects in procurement cycle that occur after contract awarded (stages 10-13)
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What would happen if you failed to correctly conduct the pre-contract award stage?
- wrong product supplied - wrong prices agreed - wrong quantity - incorrect selection of suppliers - legal action
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What would happen if you failed to correctly conduct the post-contract award stage?
- Warehousing issues - Lack of awareness of supplier performance issues - failure to improve processes - incorrect disposal of assets
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Procurement Cycle - The Sourcing Process What stages in the Procurement Cycle does sourcing relate to?
Stages 1-6 Understand Need, Market Commodity, Develop Strategy, Pre-Procurement, Develop Document, Supplier Selection
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What are the key stages in the Sourcing Process? (D C S C M) Dogs Can Sing Cats Meow
Defining Needs Creation of Contract Terms Supplier Selection Contract Award Contract/Supplier Management
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(Sourcing Process) What is meant by 'defining needs'?
Developing a spec for what will be sourced, considering what the buyer needs from the supplier.
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(Sourcing Process) What is meant by 'Creation of Contract Terms'?
Developing the T&Cs A Proc agreement has 2 components - Offer & Acceptance - Making Offer (reponse to ITT or RFQ is an offer) - Acceptance of Offer (either as presented (unconditional) or a counter-offer) An offer has to be accepted and must be confirmed
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What information should be included in an Offer from a Supplier? (P D P F L Q M P) Plants Dont Photosynthesise From Low Quiety Mouldy Places
Price Delivery Packaging Frequency Lead Time Quality MOQ Payment Terms
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Define Express Terms & Implied Terms
Express - anything said or written, and agreed between 2 parties; specifically written in contract. e.g. price or specification Implied - assumed to exist and linked to common law. Such terms do not have to be mentioned in the contract but by law are pr
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Why is it important to understand the laws of the country in which a buyer is carrying out a procurement activity?
- in order to avoid the risk of unknown implied terms - some countries have very complex, potentially confusing implie terms - to protect the buying organisation
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Define Service Level Agreeement (SLA)
Outlines the level of service that a buying organisation expects from a supplier. It defines how a service will be measured & how conflicts will be dealt with.
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Name 4 areas of a supplier's performance that can be monitored by KPIs.
Cost Time Quality Efficiency
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Key Performance Indicators Key points?
- helps organisation keep on target to meet goals/objectives etc. - must be measurable (quantitative) - SMART
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What does SMART Objectives stand for?
Specific Measurable Achievable Relevant Time Bound
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What stages of the Procurement Cycle relate to Supplier Selection?
Stages 7-9
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How does the approach to supplier evaluation differ between public sector companies and private sector companies?
Public - regulated and more stringent policies/procedures. If over a specific amount there are often pre-approved supplier database to use. Contacts are publicised over a threshold and accountable for money spent Private - unregulated about which supplie
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What are the 4 main factors of Supplier Relationship Management?
Manage Relationship Monitor Performance Maintain Strategy Manage Change
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Define Collaborative Style
Working together effectively, a style promoting win-win and trust within relationships i.e. a strategic supplier info is shared, needs understood, common goals/strategies, long-term relationship, open communication
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Define Distributive Style
A style where one party wants to win and does so by focusing on their own goals i.e. a shorter period supplier, focus is on management of contract rather than promoting the supplier relationship info witheld, no shared goals, one sided (aims to meet own
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What is meant by the term 'value'?
Meeting the exact needs of the market being targeted by an organisation.
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What stages of the Procurement Cycle are commonly carried out electronically?
Raising/receipting reqs - e-requisitioning Researching Product Ranges - e-catelogues Sourcing - e-ordering/e-sourcing Payment - e-payment
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What 2 things does E-Procurement consist of?
E-Sourcing - The electronic proc of products/services using internet-enabled applications and decision support tools. E-Purchasing - includes e-reqs, e-ordering, e-payment etc
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What are the advantages & disadvantages of e-requisitions? 6 of each
Adv: Quicker than manual process, traceability, consistency, more control, reduced risk, saves costs in long-term Dis: Large investment to install e-system, less personal, reliant on technology, training requirements, affected by power failure, individua
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What are the advantages & disadvantages of e-catelogues? 3 each
Adv: info is more in-depth, readily available and always up to date, can be viewed at all times and environmentally friendly Dis: If tech fails access is denied, lack of relationship building, may be difficult for buyer to navigate
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What are the advantages & disadvantages of e-ordering? 5 adv 3 dis
Adv: Saves time, relies on correct info input, traceablity, control, reduced risk Dis: Impersonal, if tech fails, process stops, expensive investment
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Define Reverse Auction
An auction in which suppliers reduce their bid price
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Define E-auction
An auction that takes place between a buyer and a seller on an electronic platform
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What are the advantages and disadvantages of reverse auctions?
Adv: quick and easy to compare bids, software allows open communication, no Geo or Org size contraints, lower overheads for suppliers Dis: Supplier could make lower profit than through other negotiation methods, without seeing samples suppliers could be
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What are the advantages and disadvantages of e-payment auctions? i.e. bank transfer, debit/credit card, portals such as PayPal
Adv: Quick Process, Traceable, Low risk of money going missing, high level of control Dis: Possibility of online hackers, if tech fails, no personal relationship
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What are the advantages of E-Procurement?
Promotes efficiency within the funciton Saves time Increases control Lowers risks Ultimately reduces the costs of running a procurement department
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What is the impact of Procure to Pay systems on the sourcing process?
Reduced Errors Reduced Waste Reduced Cost Faster Payment Continuous Improvement Enhance Relationships
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Define Compliance
Conforming to rules and regulations. Standards, Regulations, Legislation, Control, Strategies, Policies, Audits, Risk
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Organisational needs for structured sourcing process
Ensures consistency Transparency Standardises practices Traceability Increased Efficiency Added Value
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Sustainability
Supporting future ecological balance by not harming the environment or depleting natural resources
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In terms of suppliers, what 2 areas does sustainability relate to?
The supplying organisation is performing well and is likley to be in existence for the foreseeable future The supplying organisation is environmentally aware and is replacing any natural resources it uses
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What is a CSR Policy?
A document written by the organisation which is internally regulated and contains information on how an org. will be a responsible part of the community, both locally & globally.
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Carroll's 4 Part Pyramid (outlines purpose of CSR responsability)
Top - Philanthropic (Goodwill) 2nd - Ethical (Responsability) 3rd - Legal (Obligations) 4th Economic (Responsibilty)
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Effects of Compliance (5) E S E G S Equal Support Encourages Group Satisfaction
Ethical behaviour Sustainable Suppliers Effective & efficient Workflow Good Reputation Satisfied Customers and Consumers
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Effects of Non-Compliance (8) U U C P I P L L
Un-Ethical behaviour Un-Sustainable Suppliers Cultural Differences Product Shortages Inefficient workflow Poor Reputation Loss of Customers Legal Action
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Reduced Waste - 'Lean' thinking What 3 issues should be considered?
Purpose: understanding customer needs and how they perceive value Process: Improving process & removing waste People: Create environment that enables people to achieve max potential
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What are 7 types of waste within a process?
Motion Inventory Over-Production Waiting Defects Over-Processing Transportation
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The Continuous Improvement Cycle I P E R
Identify Plan Execute Review
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What does EDI stand for? What is it?
Electronic Data Interchange Exchange of documents in an agreed format between organisations - removes the need for paper and people
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What are the adv. and disadv. of EDI?
Adv: Quicker transactions, improves accuracy, less waste, improves cash flow, real time visability, reduced lead times Dis: Large investment, not all orgs. use same system, staff training required, not all orgs. want to use EDI, no human contact in some
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Define Corporate Governance
The mechanisms, procedures and processes that are used to control and direct an organisation.
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What is the purpose of Corporate Governance?
To make organisations effective, efficient and successful and their procedures and policies ethical. Aims to direct and control the actions of stakeholders
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What are the elements of corporate governance?
Policies & Procedures Management, Stakeholder & Board Accountability Performance Management Stakeholder Protection Values & Ethics
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Define Conflict of Interest?
A conflict of interest describes a situation where someone within an organisation has opposing loyalties.
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What 2 ways may a conflict of interest present itself?
1. An actual conflict of interest occurs when a procurement professional has to make a decision that may affect them personally 2. A perceived conflict of interest occurs when a procurement professional has private interests that could affect a decision
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Define code of ethics.
A document detailing acceptable behaviour within an organisation.
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Why should potential conflicts of interest be addressed?
To make sure no unethical behaviour occurs and the orgs. code of ethics is not breached
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4D Model
Disclose Distance Delegate Disassociate
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What 5 things does ethics in procurement relate to?
Modern Day Slavery Child Labour Human Rights Bribery and Coercion Fair Trade The Evironment
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What are the main elements in a code of ethics?
Values Principles Personal Responsability Compliance Reporting
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What are the benefits of having code of ethics?
Framework - aids cohesiveness Reputation Protection Focus - focused on good practice Involvement - consult parties at all levels Diversity
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CIPS Code of Conduct
pg. 123
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Define Policy Define Procedure
A document outlining how a business will conduct itself. The way a policy will be carried out.
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How are policies and procedures related?
(Pyramid) Legislation, Regulations, Standards, Objectives Policies Procedures Working Methods
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What is the purpose of Policies and Procedures? C C B P S E E A L
Ensures Conformance Ensures Complaince Protect from coercion, bribery or fraud Organisational Protection Continuity of Supply Promote efficiency Promote ethical behaviour Assist Audit Procedures Aid with Legal Cases
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Define Organisation Accountability
All members of the business working together to achieve the objectives.
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What are the 5 levels of Competency for Procurement? T O M P A
Tactical - applies key tasks associated with P&SC Operational - Provides advice and guidance to key stakeholders on org. performance Managerial - Develops, improves and fulfills org. and functional objectives Professional - formulates direction and advice
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Describe 4 ways accountability within the organisation can be enhanced?
1. Define clear roles & responsabilities 2. Promoting a sense of ownership 3. Providing freedom, control, support and ownership 4. Embrace positivies and do not focus on negatives i.e. compliance with ethics, awarding contracts to most suitable, managin
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Define Mark Up
The expression of profit as a % of costs.
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Responsabilities for Procurement Think about; 1. Who has authority to accept/process orders? Question: What are the risks of sending a req to someone without authority?
A: potential delay in goods being ordered/received, may not be ordered at all or may be incorrect, unapproved suppliers may be contracted, financial implications like agreeing to a high cost
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Responsabilities for Procurement Think about; 2. Who has the authority to make decisions?
By determining who has the authority to authorise decisions helps to; - monitor spend - mitigate risk - ensures good ethical behaviour - provides a structure (aids efficiency & promotes conformity)
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Invoice Clearance and Payment
Invoices should be checked against the PO and goods received note to ensure that they match. i.e. quanitity received, price, tax rate applied, transport costs, payment terms
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Delegated Authority Procedures
Following these proceduers saves time and money, increasing efficiency due to responsibilities being clearly defined. Better control and exposed to lower risk.
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Define Strategy
A long-term plan formulated by senior managers within the organisation and sets out actions to be carried our in order to meet the org. missions and visions Strategies must constantly evolve in line with market forces.
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Examples of Procurement Strategies
Achieving cost reduction Adding value within the supply chain Encouraging local supply Ethical improvements JIT implementation
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Define JIT
A system that works alonside Lean Manufacturing. In order to reduce waste in the supply chain, JIT makes sure that stock is not held unnecessarily in inventory.
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The Lewin Change Model
Unfreeze Change Refreeze
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What are the 2 types of Change?
1. Step Change - a radical and fast change, often a reaction to unexpected factors 2. Incremental Change - slow and gradual changes in strategy, less radical than if there has been no pattern of continuous change
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What are the Advantages of Procurement Strategies, Policies and Manuals?
Provides Guidance Gives Continuity Promotes Ethical Behaviour Retains Control Reduces Risk Promotes Accountability Treats all suppliers similarly Prevents non-proc team members sourcing/buying
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What are the Disadvantages of Procurement Strategies, Policies and Manuals?
Everyone uses the same technique Buyers lose their individualality Makes all relationships very formal Suppliers may resent having to conform
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What does ILO stand for?
International Labour Organisation Exists to protect people against exploitation in the workplace
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Define Centralised Structure
Vast majority of activities carried out at one central location, often implemented by large orgs. that have considerable spend to manage across multiple sites.
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Advantages & Disadvantaged of a Centralised Structure
adv: stronger supplier relationships (1 buyer for all buying reqs.), Saves on resources and more cost effective as they can obtain economies of scale as well as using fewer staff Dis: Longer processes as indv. have to follow policy/procedure to place req
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Define Devolved Structure
Procurement carried out by location or departments
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Advantages & Disadvantaged of a Devolved Structure
Adv: Direct comms with supplier, fast delivery, supports local suppliers, fewer procedures, specialist product knowledge Dis: Prices may not be negotiated to best value, economies of scale not used, supplier rel. not valued, TCO not monitored, detracts f
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Define Hybrid Structure pg. 154 Table 3.12
A mix of Centralised and Devolved Structures
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Name 4 recognised Hybrid Structures
- Consortium Structures - Lead Buyer Structures - Shared Services -Outsourced
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Define Consortium Structure
Formed when similar orgs./org.s with the same need collaborate for their mutual benefit (because they will be able to obtain economies of scale) pg. 154 Fig. 3.16
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What are the 6 different types of Consortia? L V R P M N
Loose (informal, to get better pricing & share info) Voluntary (more formal, purch manager procures on behalf of orgs. in group) Regional (Centralised structure based on Geo) Profit-Making (strenght in no.s approach to enhance profit margins) Member-Owned
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Advantages & Disadvantages of a Consortium Structure
Adv. EoS, Additional negotiating skills, Lower Prices, Reduced Workload, Improvement of best practice, shared increased knowledge, reduced levels of risk Dis. Reduced control, internal conflict, reduced competition, increased supplier lead times, supplie
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Define Shared Services
A form of centralised structure ofthen used in hybrid structures. Occurs when org. centralises its support functions i.e. HR, ICT, Admin, Finance
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What is the purpose of implementing 'Shared Services'?
- To create uniformity in policies, procedures and standards - Continuous Improvement - To save costs - Streamline and standardise processes - Improve quality of the services provided
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Advantages & Disadvantages of a Shared Service?
Adv. Reduces costs, provides high level of skill and knowledge, focus on core activities, avoids duplication of work, info held in a central location Dis. Increased risk of breaching dept. confidentiality, resistance to change, new processes/procedures t
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Define Lead Buyer Structure
When 1 org dept or individual takes reponsability for setting framework or purchasing of a specific product or service
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Advantages and Disadvantages of Lead Buyer Structure
Adv. Indv. with procurement experience can develop their skills, EoS achieved, reduced workload in comparison to Devolved strategy Dis. If dept has no P&SC knowledge then prices wont be competitive, products/services chosen may not suit all parties, red
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What can Procurement Outsourcing be used for?
Reduce Costs Save Time Enable Org to concentrate on core competencies Reduce Staff Integrates external expertise into an org. Fits into hybrid structure
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Advantages and Disadvantages of Outsourcing
Adv: Cost reduction, reduced training costs, lower headcount, EoS, access to highly skilled buyers Dis: changing from internal to outsourced could make employee relations difficult, lack of control, needs managing (time), tech issues of integrating compa
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What is rapport?
Concerned with finding a common ground, understanding the other parties feelings. It involves mutual trust and understanding built on good communication.
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What 4 elements make up the 'Trust Matrix' ? pg. 161 Fig 3.17
Affection Trust Distrust Respect
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What are some different methods to building rapport?
Positive body language and eye contact Ask questions Be empathetic Respect all ideas Be honest Justify opinions and feedback
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What is Maslow's Heirarchy of Needs? What are the 5 heirarchies?
A motivational theory based on an individuals physical and psychological needs. (Bottom to top) Biological and Physiological needs Safety needs Belongingness and Love needs Esteem needs Self-actualisation
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What are the elements involved in 'Value for money'?
Customer Service Innovation 5 rights of Procurement Total Life Costs
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What are 3 systems for inventory management?
MRP JIT Kanban
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What are the disadvantages of Electronic MRP systems?
Rely on correct info from the outset (i.e. BOM, MOQ or leadtime) Product developments need to be updated Potential for incorrect demands to be placed
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Define JIT
A systems that contributes towards the reduction of waste in the supply chain. JIT's purpose is to make sure that inventory is not held unnecessarily.
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Define Kanban Theory
Linked to continuous change and aims to refine and improve work systems. Maintaining acceptable levels of inventory.
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Advantages of IT systems in procurement
Accurate data provided Saves resources Improves efficiency Speeds up Comms Promotes consistent working methods Traceability Supplier/Customer Visibility Allows remote working
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Disadvantages of IT systems in procurement
Reliant on accurate set up info Time consuming to install Large financial outlay to implement Resistance to change Incorrect data input could cause major problems Less direct contact with suppliers
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Define ERP? Basically SAP
Enterprise Resource Planning An IT systems that co-ordinates and integrates business proceses and automates back office procedures to enhance efficiency. e.g. holds relevant info & stores centrally, can streamline processes and eliminate repetition of w
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Define Cloud Computing
The delivery of IT services such as storage and networking which are hosted by a third party and accessed over the internet.
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What are ERPs most recent developments?
Remote access Cloud based systems - frees up physical space, reduces risk of lost data, less likely affected by power cuts etc Social media modules
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What are ERP elements of the supply chain? pg 174
Reqs PO creation & sending Delivery of PO Invoice Contract Management SRM Supplier database/evaluation
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Define M2M
Machine to Machine Communication
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What are the advantages of IT systems within communication?
Speeds up processes Reduced errors Increased control Aids traceability Not reliant on human input Receipt of messages can be tracked
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What are the disadvantages of IT systems within communication?
Relationships may suffer Impersonal Could result in job losses Costly to implement IT support required Risk of power failures E-mails may be open to interpretation
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What is a sector?
Sectors are a way of classifying organisations in relation to the way they are funded, what their objectives are and what products/services they are involved with.
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What are the 3 types of sector?
Public - owned and controlled by gov, provide public with services integral to wellbeing/lifestyle, funded by taxation, Value for money is paramount Private - privately owned/funded & have an objective to make a profit (Sole trader, partnership, Ltd or PL
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Define Privatised
Taken over by private investor and run as a Limited or Public Company
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Sole Trader
Simplest form of private sector business, run by 1 person i.e. hairdresser, artist Complete responsability for running business, do not have to share profit or report to anyone Solely liable for any debts incurred
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Partnership
2 or more individuals PArtner with largest % are known as the majority owner
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Private Limited Companies (Ltd)
Legally seperate from the people who run it Must have a minimum of 1 shareholder - privately owned shares and not traded on stock exchange. The shares of an Ltd belong to owners and cant be bought and sold on the stock exchange.
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Public Limited Companies (PLCs)
Similar to Ltd but its shares are traded on the stock exchange The shares of a PLC are traded on the stock exchange and belong to investors.
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Third Sector Organisations (TCOs)
Exist to support/promote social, environmental or culteral obj - any profits they make are used to support their goals
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Define Co-operative
A people-centred enterprise owned and run by and for its members, which either re-invests any profit or returns them to its members
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Main differences between Public, Private and Third Sector?
Page 189
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What are the 3 types of industrial sector?
Primary - acquisition/extraction of raw materials Secondary - transforms raw materials into finished goods (assembly, construction, manuf.) Tertiary - provides a service and support to the other 2 sectors i.e. retail, education
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What are the objectives of Public sector orgs?
- caring for citizens - providing and improving services - enhancing and operating facilities
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Define cost avoidance
Limiting potential cost increases
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Define Framework Agreement
An arrangement that is put in place with one or more suppliers for the supply of a range of supplies or services in which the prices and Ts & Cs are all agreed for the duration of the period of the arrangement.
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What are the 4 types of procurement procedures in the public sector?
Open Restriced Competitive Dialogue Competitive Procedure with negotiation
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Define open tender procedure
A single-stage process, giving any organisation wishing to bid a chance to do so
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Define restricted tender procedure
A 2 stage process; 1) advising potnetial suppliers about the available contract and asking to submit a q'aire that is analysed to see if they meet criteria 2) small no. of shortlisted potential suppliers receive full info and are able to submit a bid
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Define competitive dialogue
Multi-stage process involving feedback from potential suppliers prior to bidding. Suppliers indicate their interest and successful ones are shortlisted. Then enter comms with buyer. Potential suppliers eliminated by pre-determined criteria and suitability
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Define Competitive dialogue with negotiation
Multi-stage process involving negotiation with the winning bidder.
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Procurement Policy Notes (PPN)
UK Procurement Document providing guidance on best practice.
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Advantages and Disadvantages of Regulations on Procurement?
Adv. Promotes uniformity of processes, enhanced control, reduces risk, provides accountability and traceability, can open up contracts to wide market. Dis. Time consuming, Costly, strict evaluation process may remove best supplier, one regulation does no
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Define public accountability
Obligation of the associated enterprises to be answerable to those who fund them
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Define Monopoly
Company or Group with little or no competition
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What is public accountability?
About providing the government and public with a clear and undistorted view of how thinga happen, and the outcomes/issues that may present themselves. i.e. transparency, efficiency, responsability, integrity, trustworthiness
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Value for money - the 3 Es what is the forth E?
Efficiency - spending well Economy - spending less Effectiveness - spending wisely Equity - spending fairly
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What are 4 objectives of a private sector organisation?
Making a profit Increasing Market Share Increasing Shareholder value Ensuring action are socially responsible
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Define market share
The amount of ownership or control an organisation has over a particular area of the market through volume of sales or value of sales.
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Define turnover
The income, or amount of money that comes into a business, also known as revenue
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What are 5 rights of Shareholders within an organisation?
- influence company decisions - buy more shares or to increase their holding - to a share of the company profits - vote in company decision making - take legal action against the organisation
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What are 6 ways a positive brand can be created?
- convincing consumers they need the product/service - displaying a strong image - having values customers can relate to - empathy with customer needs - being future orientated - offering sustainable solutions
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What is a TSO?
Third Sector Organisation The purpose of a TSO is to provide support for a cause; they often have volunteers as staff who are happy to work for free to help support the organisation in achieving its goals and objectives. Objectives may differ depending o
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What are the general objectives of Charities (TSO)?
Raise awareness of a cause Attract donations and funding Ensure continuity of support Engage stakeholders
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What is a buying group?
Aim to offer their members cost savings on a wide variety of products; members are usually individual businesses as members of a buying group they have purchasing power which helps to obtain competitive pricing
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What are the objectives of a buying group?
- Negotiate best prices for members - Providing support through advice on relevant issues and matters relating to the buying group and associated trades - Shares best practice, contacts and information - Keep membership fees/levies as low as possible - A
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