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L4 > L4M6- Chapter 1- Relationships in supply chains > Flashcards

L4M6- Chapter 1- Relationships in supply chains Flashcards

1
Q

When would you want to create something internally?

A

Part of the make or buy decision
Internal normally are products and services that are core to the organisation
You want a high degree of control
Continuity of supply
The relationship is internal
Improved quality due to control of production
Potential for lower costs
Protection of IP

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2
Q

What are the disadvantages to creating something internally?

A

Unless benchmarked against external you do not know if you are getting value for money
Could argue that internal has both fixed and variable cost, where getting external could be transactional so could just be variable
No money is changing hands so could be less motivated
Could become out of touch with trends
Requires investment internally e.g. ownership of machinery

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3
Q

Why might an organisation not be able to make something in house?

A

High cost
Legislative barriers e.g. requirement for license
Skills shortage
Access required to patented items

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4
Q

What is ESG?

A

Environmental, social and governance

It is a measurable sustainability assessment, similar to CSR but more measurable and specific

A set of standards for company behaviour

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5
Q

What are the advantages of using an external supplier?

A

Experts in a field
Cost effective (economies of scale)
Free up internal resource
Access to patents
Flexibility to meet challenges
useful for small volumes (e.g. if you made in house the equipment would be prohibitive

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6
Q

What are the disadvantages of using an external supplier?

A

Dependency on the supplier
Damage to reputation if supplier is unethical
Cost/risk of transport
Relationship management risks

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7
Q

What is the CIPS relationship spectrum?

A

A continuum that shows the breadth and range of relationships that can exist between supplier and buyer.

Ranks level of commitment of the supplier and level of commitment of the buyer

Starts at adversarial (low on both) and goes up a linear graph to co-destiny

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8
Q

What are the 5 things that define the relationship types in the CIPS relationship spectrum?

A

Trust level

Transparency/openness

Commitment to the relationship

How risk is managed

Frequency and quality of comms

Will also need to consider:
Spend level
Risk of product
Duration of contract
Level of innovation required

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9
Q

What is the Kraljic matrix?

A

Allows a buyer to determine the level of relationship required with a supplier

Compares level of risk v level of spend

1) Routine
2) Leverage
3) Bottleneck
4) Strategic

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10
Q

What is the Steele and Court matrix?

A

Used by a buyer to assess what the supplier views the buyer.

It helps to determine negotiation styles, communication strategy, T&Cs etc

In a good relationship the two matrix should align e.g. core and strategic across the matrix

Compares attractiveness and proportion of spend

1) Nuisance
2) Development
3) Exploitable
4) Core

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11
Q

What are negotiation tactics?

A

Methods and strategies used by both buyers and sellers to enhance their commercial situation

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12
Q

What are the three basic ways that conflict can be worked out?

A

Win-lose- One party gets what they want at the expense of the other aka the supplier/buyer gets a bigger piece of the pie

Lose-lose- neither party gets what they want aka both getting a smaller piece of pie than they wanted

Win-win- Beneficial to both aka expanding the pie

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13
Q

What are the 6 stages of a typical supplier relationship?

A

Qualification- Reaching out to the marketplace, Carters 10 Cs

     ----->>>>On boarding- Once identified RFI and RFW help identify those worth selecting

Segmentation and risk management- Second phase is looking at the products a supplier provides and understand the type of relationship that is required

Performance management- periodic review of the suppliers performance, part of contract management

Development and innovation- time consuming so only for strategic suppliers, should be a two way process, should have measurable benefits

      ----->>>Phase out (if required)- inevitably some relationships will end, could be due to end of contract, retendering process, termination due to a material breach, supplier becomes insolvent
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14
Q

What are carters 10 Cs?

A

Clean
Capacity
Culture
Cost
Cash
Communication
Consistency
Control
Commitment
Competency

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15
Q

What is gearing?

A

A measure of how a business is doing based on a ratio of its debt to equity, quality of debt and cost of debt

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16
Q

What is supplier development?

A

The process of working with a supplier to develop its products and services it delivers. The primary aim is commercial gains for the buying organisation, but it will also be wins for the supplier

It is time consuming and therefore should be saved for strategic suppliers relationships

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17
Q

What benefits can be achieved from supplier development?

A

Can benefit both buyer and supplier
Reduce costs
Elimination of waste, improving value
Long term business security
Motivation

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18
Q

What is a material breach?

A

Within a contract this is failure of performance. It tends to be so great that it gives the other party the right to terminate the contract and sue for damages potentially

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19
Q

What is TUPE legislation?

A

Transfer of undertakings protecting employment

These protect the rights of the employees if a business is transferred to say new ownership

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20
Q

What are the 3 types of matric that will help do portfolio analysis?

A

Kraljic- Supply positioning of risk vs importance

Steele and court- supplier preferencing

Market management matrix

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21
Q

Why would a procurement department do an exercise to understand positioning of suppliers/ portfolio?

A

Focus on available resources that add value
Opportunities to develop a competitive advantage
Providing a framework for decision making
Improving risk management

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22
Q

What is on the kraljic matrix and how is it measured

A

Supply positioning and can be used to judge the importance of products and segment purchases to use appropriate strategies

Measures:

Importance- e.g. using ABC

vs

Risk- e.g. risk management like STEEPLED

You can segment products in value order and do the importance vs risk and plot on the matrix to get a picture of the organisations procurement strategy

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23
Q

How is risk identified and managed?

A

Can use STEEPLED

Monitored on a risk register

Identify
Assess
Control
Mitigate

Risk = probability x impact

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24
Q

What is a call off contract?

A

An overarching agreement with regards to price and T&Cs that allows an organisation to order stock or services as required over a period of time.

Useful when volume over a period of time is unknown

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25
Q

What are some drawbacks to the Kraljic matrix?

A

Markets are complex and not everything is easy to classify
There is subjectivity involved in classification
The analysis is only a snapshot as the environment will change
It is applied to products/services specifically not necessarily the supplier
Can be risks outside of the buyer/supplier relationship

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26
Q

Why might a supplier not want to work with a buying organisation/ find the buyer an attractive proposition?

A

Unprofitability
Knowledge from the industry e.g. late payments
Large organisation who doesn’t need the business/ at capacity

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27
Q

Why might a supplier find a buying organisation attractive?

A

Profitable
Good PR e.g. working for olympic games projects
Growth opportunity
Stability and predictability
Reputation
ESG and ethical practices
Collaborative
Low risk

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28
Q

What is the supplier preferencing tool?

A

Also called the Steele and Court matrix and looks at how the supplier views the relationship with the buyer. It is limited by being a snapshot in time, non quantifiable and also from the buyers perspective

Ranks from the suppliers perspective:
Attractiveness of buyer

vs

Value of business

Nuisance
Development
Core
Exploitable

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29
Q

What is the benefit to the buyer of being a preference of the supplier?

A

Top of allocation list for products/services in short supply
Access to NPD
Better collaboration on cost reduction

30
Q

What is the market management matrix?

A

This is a combination of the Kraljic and the steele and court matrix

Gives a holistic view of supply positioning and supplier preferencing

Benefits:
- Further chance to evaluate relationships and where opportunity lies
- Indicate where action needs to be taken
- indicate where a change of relationship rather than a change of supplier might be required

31
Q

How could a buying organisation who is seen unfavourably (e.g. as a nuisance) in the suppler preference matrix become more important?

A

These would be resolved via Supplier Action Plans

Increase the volume/value of the business (there are risks with single source)

Involve the supplier in innovation and development programmes

communicate with the supplier to understand why they may be considered a nuisance and what issues need to be prioritised to change that

32
Q

What are porters 5 forces? What is it used for?

A

Understanding the attractiveness of an industry and ultimately inform whether there is opportunity to make a profit in an industry

Threat of substitution
Competition
New Entrants
Power of Buyer
Power of Supplier

33
Q

What is a monopoly, duopoly and oligopoly?

A

Monopoly is where there is only one supplier

Duopoly is where there are two suppliers in the market

Oligopoly is where the market is dominated by a few large suppliers

34
Q

Give information about monopolies

A

One large supplier in a market
Buyers have to sole source (no choice but to use the 1 supplier)
Example in the UK is water companies
In the UK it is monitored closely by the competition commission to monitor this (think about Asda and Sainsburys)
Suppliers have all the bargaining strength
Patents can generate monopolies

35
Q

Give information about duopolies

A

2 suppliers in a market
Can result in uncompetitiveness through unofficial commercial alliances
Historically this would have been airbus and boeing before comac entered the market

36
Q

Give information about oligopolies

A

Where a few large suppliers dominate the market as cost of entering the market is large
Examples are the oil industry
Actions of one company can significantly affect the others
Supplier power is still strong
Governments have responded with controls to try and prevent price fixing and collusion

37
Q

What is imperfect competition?

A

There are a number of suppliers in the market, but they are not selling similar services or products reducing the amount of competition

Each seller could therefore follow a differentiation strategy

Monopoly and oligopoly are examples

38
Q

What is perfect competition?

A

Large number of suppliers selling identical products and services
It is hypothetical where competition is at its greatest
There is perfect market knowledge (all buyers have easy and instant access to prices)
There are no barriers to entry
All companies are price takers (do not influence prices charged)
There is a cost to competing, e.g marketing costs

Example is agricultural produce

39
Q

What is monopolistic competition?

A

Companies in the market offer similar products or services but not perfect substitutes
Comapnies have the same low level of market power
Prices are elastic (where when prices are lower demand is higher- normally occurs when there are a number of substitutes)
Examples of this are restaurants, hair dressers, clothing, taxis
Sits somewhere between monopoly and perfect competition

40
Q

What is oligopsony?

A

This is where there a few large BUYERS/CUSTOMERS dominating the market

41
Q

What is a monopsony?

A

Only one buyer in the marketplace which will have strong market power e.g. manufacturer of brain scanners that are only affordable to the NHS. However, now football teams have invested in brain scanners meaning it is becoming an oligopsony

Example in america could be a very large supermarket like walmart

42
Q

What can affect rivalry between companies in a market?

A

Industry growth/decline
Product differences/ brand identity
Switching costs
Diversity of competitors
Exit costs

43
Q

What are barriers to entry?

A

This prevents the threat of new entrants, e.g. in oil and gas where barriers are too high

Economies of scale
Start up costs
Licenses/permits
High switching costs for existing customers
Access to distribution networks
Knowledge and skills
Government policy (which may protect national industries)

44
Q

What will influence the threat of substitutes?

A

Linked to barriers to entry, if barriers are low there will be more players and more substitute options. Suppliers will want to defend against substitute threat, whereas buyers want more choice to drive competition (which increases quality and reduces cost)

Relative price performance of substitutes (e.g. if an android phone is cheaper than Apple)
Switching costs for buyers
Trends e.g. fashion, technology
Buyer propensity to substitute and risk

45
Q

What is power of suppliers and when is it strong?

A

Supplier power is at its strongest in a monopolistic market
Example is an OEM as the buyer has no choice but to use them
When supplier power is strong they have little or no reason to invest in building relationships with buyers

Power is strong when:
- Supplier can differentiate its offering
- Switching costs for buyers is high
- Lack of substitutes

46
Q

What is power of buyers and when is it strong?

A

When there is competition in the marketplace
Where branded products do not need to be used
The market is a monopsony
Large purchase volume
Large amount of information
Threat of backward integration
There are substitute products available

47
Q

What is backward, forward, vertical and horizontal integration?

A

Backward = buyer purchases supplier
Forward = An organisation purchases a customer
Vertical = When a buyer owns companies within its supply chains. Can be forward/ backward vertical integration
Horizontal = Where an organisation buys or merges wit a competitor (usually to increase volume)

48
Q

What is the matrix used to assess buyer/supplier power

A

It ranks buyer power vs supplier power

Independence = Bottom left
Buyer dominance = top left
Interdependence = top right
Supplier dominance = bottom right

49
Q

What is STEEPLED used for?

A

This is to assess the factors that apply to a supply chain, and helps analyse any external influences and risks that could affect a company.

50
Q

What does STEEPLED stand for?

A

Social e.g. consumer tastes, trends, fashions
Technological
Economic
Environmental
Political
Legislative
Ethical
Demographic e.g. ethnic mix, social class, gender, aging population

51
Q

What is a business cycle?

A

This is the rise and fall over time of output in an economy as measured by GDP (gross domestic product)

52
Q

What influences where a supplier relationship sits on the relationship spectrum?

A

Level of trust
Level of openness (transparency + info sharing)
Commitment
Mitigating risks (who manages and mitigates)
Frequency and quality of communication

53
Q

What is added value?

A

Non cash releasing benefits generated via procurement and SRM. Sometimes considered as something that you would otherwise pay extra for

It can also be a justification for spending time and resources on building relationships with suppliers

54
Q

What is RORI?

A

Return on relationship investment- financial benefits for a buyer of establishing, developing and maintaining a supplier relationship

55
Q

Developing strong supplier relationships can support added value outcomes- procurement can support the delivery of a number of benefits, what examples could they be?

A

Cash savings/ cost avoidance e.g. by reducing waste
Risk management
Improved efficiency
Improved ESG

56
Q

What is the value chain?

A

The coordinated processes, people and resources within an organisation which generates corporate value

Porter developed the model with the support and primary activities

57
Q

What is PDCA?

A

Plan, do, check, act

Used for continuous improvement cycles

58
Q

What is a value network?

A

Described as economic ecosystems- a set of connections between organisations interacting which benefit the whole group. Buyers and suppliers can work together to serve the needs/interests of the group.

59
Q

How can procurement add value?

A

Price/cost management
Improving quality
Timescales- e.g. lead times, reduced late deliveries, prevention of bottlenecks
Quantities- Right quantity, storage, holding, etc
Place of delivery
ESG

60
Q

How can procurement add value to the pricing/cost management?

A

Specification development (making sure it is fit for purpose, not over specified)
Run competitive tenders
Review WLC not acquisition prices only
use E-sourcing
Negotiate- usually following the tender
Contract management

61
Q

How can value be added through quality?

A

Improving costs that are needed for rework or faulty components
Costs of downtime
Poor quality products reaching the end customer

62
Q

What is the difference between quality control and quality assurance?

A

QC = developed first to control variation, used to control the quality of the output

QA = Process of managing quality involving systems and processes e.g. spot checking or mystery shoppers

63
Q

Why would you add value through holding stock?

A

Ensures supply is available if something severe happens in the SC
Can reduce lead times
Discounts for bulk buying
Safety against price fluctuations
Better demand management

HOWEVER
There is a cost to storage
Capital is tied up and you need the capital in the first place
Risk of obsolescence
Lost opportunity cost

64
Q

How can ESG negatively impact an organisation?

A

NEGATIVES:
- Human rights issues in the SC
- Irresponsible waste disposal
- Unnecessary carbon emissions
- Use of non renewable materials
- Lack of equality and diversity
- Bribery/corruption

65
Q

In addition to the 5 rights, procurement can add value through effective ESG, which ESG processes may add value?

A

Specification- including standards, packaging requirements, social value (positive local impact), T&Cs

WLC- Particularly in relation to running costs, the longevity of the asset and end of life costs (disposal)

Supplier selection and award- Code of conducts, ESG policy, code of ethics, labour policies, accreditations

66
Q

When is an RFP used?

A

When there is known competition in the market and the scope is well defined

67
Q

What is price elasaticity

A

A measure of change in demand for a product or service in relation to changes in its price

if it is more elastic the more the price goes down the more demand increases. There tends to need to be a lot of substitutes for the price to be elastic

68
Q

What is forward, backward, vertical and horizontal integration?

A

Forward is where the supplier buys the retailer/customer

Backward is where the buyer purchases the supplier

Vertical is where an organisation owns multiple companies in the supply chain

Horizontal is where there is a merger with a competitor

69
Q

In what ways could you add value from a cost/price perspective?

A

Reduce costs

Mitigate a CPI

Get more for the same amount

Amend terms e.g. move from 30 to 60 days payment to improve your cash flow

Reviewing that there is not overspecification

Running effective tendering

Negotiation

Contract management

70
Q

Give examples of documents that procurement professionals could request to assess a suppliers ESG credentials

A

Code of conduct

Code of ethics

Labour policies

Accreditations e.g. Fairtrade international

L4 (13 decks)

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