Chapter 1 Flashcards
(42 cards)
What is the difference between Procurement, Purchasing & Supply?
Procurement is a strategic function and involves both purchasing and supply as well as added value, costs, logistics, quality etc
Purchasing is the act of physically ordering and buying something
Supply is the infrastructure which ensures the products or services get from the supplier to the customer
Remember, without procurement there would be no purchasing and without purchasing there would be no supply
Remember, cost do not need to be monetary…
Time, material, effort, opportunity etc
What is the difference between fixed and variable cost?
Fixed cost do not change with level of output, variable costs do change with level of output
What is the difference between direct costs and indirect costs?
Directly - directly related to the job. For example, components, labour wages
Indirect - those not directly related and often referred to as overheads. Foe example, salary of support staff, rent of office space, mobile phones
What are examples of capital purchases?
Machinery, buildings or land. In short, purchases which are supposed to be investment into the company efficiencies and outputs.
How would you describe economies of scale?
Trend of cost per unit decreasing as output trend is increasing. This is by spreading the costs of fixed costs such as tooling or machinery costs spread over more units and just simply higher bargaining power of buying more raw material leading to volume discount.
What are sundries?
Miscellaneous goods or services, usually of low value
What various sectors exists according to CIPS?
Primary sector - extraction of raw materials
Secondary sector - manufacturing with raw material inputs
Finished goods/ Tertiary - selling of manufactured goods via Highstreet shops or online retailers or professional services i.e. law firms or banking
Quaternary - companies concerned with research and development, intellectual advancement i.e university
Quinary also known as third sector organisation (TSOs) - human service such as NHS, charities, NGOs etc
Remember, a production organization is one which make or manufacturers goods
What is non stock procurement?
Non physical purchases such as services which are also intangible i.e. tertiary sector
Non stock procurement are often capital purchases
Which two types of budgets does an organization use?
CAPEX - capital expenditure such as construction or purchase of machines/ equipment
OPEX - relates to operational expenditure i.e. marketing, finance and so on.
Capital purchase are assets of a business. They are purchase to help a company increase or maintain efficiency and output. They are often referred to as spending money to make money. Capital assets are often treated for depreciation which is treated as a cost of a company accounts
Operational purchases are those which keep a businesses day to day function running. For example, rent, raw material, salaries, insurance, transport.
What are the 5 rights of procurement?
Quality Quantity Time Price Place
What is ISO 9000?
Set of international quality management and assurance standards to help companies maintain an efficient quality system.
What does ISO stand for?
International Organisation for International Standards
What should you be most careful of when using standard, ISOs in specififcations?
The date of publication! An ISO number may be updated over time so everyone need to be working on the same version!
You could expressly state the ISO, standards date of publication and advise that version take precedent in the specification.
Business Management ISOs
9001 - Quality management systems
27001 - Information security management
5001 - Energy management
14001 - Environmental management
What is the purpose of the Kraljic matrix?
It distinguishes between different procurement strategies on goods/ service value and risk. It aimed to maximising buying power whilst minimising risk.
Make sure you can draw this.
It enables segmentation of category management.
Cost Impact axis refer to impact on profit
Supply Risk axis refers to number of supplier in marketplace , delivery risk, technology risk etc. Plotting on Supply Risk axis can be supported by PF5. Important link!
What relationship strategies should be applied to the Kraljic Matrix?
Routine suppliers - adversarial/ arms length
Bottleneck suppliers- single source, long term contract
Leverage suppliers - closer tactical, outsourced
Strategic suppliers - Strategic alliance, performance based relationship with single or sole source, co destiny
Remember, net price excludes tax. Gross price includes tax
What Incoterms exist?
(EXW) Ex Works – goods are considered delivered at supplier premises. Supplier is not responsible for loading or transporting
(FCA) Free Carrier – the supplier is responsible for placing the goods in the hand of the carrier. At this point the buyer takes on the risk
(CPT) Carriage paid to – supplier is responsible for deliver goods to the carrier or an agreed intermediate
(CIP) Carriage and Insurance Paid To – Same as CPT but with insurance to that point
(DAT) Delivered at Terminal – Supplier delivers to a terminal of choice as well as unloading them. Risk is then passed to buyer.
How many incoterm are there and what are they?
EXW - Ex Works
Goods are considered delivered at point of leaving supplier premises or to another named place. Buyer then assumes risk. Buyer must arrange export clearance and shipping
FCA - Free Carrier
Supplier is responsible for putting goods in hands of a designated carrier, at a named place chosen by buyer. Buyer than assumes risks and responsible for completing next shipping steps
CPT - Carriage Paid To
Supplier is responsible for delivering goods to a carrier. carriage is absorbed into product price. Buyer then assume risks and responsible for insuring items
CIP - Carriage & Insurance Paid
Supplier is responsible for delivering goods to a carrier and should ensure a minimal level of insurance covers the risk. Buyer then assumes risk.
DAT - Delivered at Terminal
Supplier is responsible for delivering goods to a named sea port and terminal and unloading them. Buyer than assumes risk and and responsible for completing next shipping steps
What is the definition of Incoterms?
Chamber of Commerce published terms covering the allocation of risk between buyer and seller
What is the definition of TCO/ Total Life Cycle costs?
Total cost of ownership (TCO) and life cycle costs are used interchangeably. They include all cost of owning an asset from acquisition to disposal.
Total cost of ownership (TCA) makes up TCO and is focused on the cost of getting the product to the buyer premisis. i.e. purchase price, transport/ insurance (incoterms), lead time, quality etc.
What is the definition of an Internal Supplier?
An internal supplier is one which is owned by the company. Similar to a sister company/ division etc. Internal supplier are most often used by the company to support ‘core activities’
CIPS suggest internal supplier selection and relationship management should be treated the same external supplier. All aspects.
What are the advantages of using an internal supplier?
Greater control and continuity of supply
Less dependent and parties external to the business
Both parties share common goals, culture and values, this likely to maintain a long term relationship
Higher quality control. Can influence it more
Potential for lower cost as internal supplier shouldn’t usually charge margins
Greater IP, copy right protection
