L4M1 Flashcards
(39 cards)
Without procurement there will be no purchasing and without purchasing there would be no supply.
Procurement is strategic function and involves a high level of skill
(purchasing and supply are functions within procurement).
Purchasing is the act of physically ordering a buying something.
Supply is the infrastructure which ensures that products or services get from the supplier to the customer.
Direct costs are directly associated with a job
Indirect costs are not directly associated with a job.
Direct costs are: bricks, cement, labour, etc
Indirect costs are often called overheads: salary of support staff, rent, mobile telephone contracts
Non stock procurement are not listed in the inventory , are often Capital Purchases.
Non stock procurement may be also intangible ( cleaning services, telephone systems, internet contract, insurance, advertising)
Note: intangible non stock procurement belong to the tertiary sector. Tertiary sector services are the commercial services used to help run the organisation.
CAPEX budgets manage capital purchases
OPEX budgets manage operational expenditure
Capital Purchases are one off purchases of machinery, land or property
Capital Purchases are often referred to as “spending money with a view of making money”
Operations expenditure is made to ensure the efficient day to day running of the business. Includes: rent, raw materials, salary, insurance, transport
Quality standards are used globally to ensure that products or services meet customer approval
ISO 9001 is the only global standard that is recognised worldwide.
Any organisation can work to the standard whether they are large or small.
Performance specifications open up the supplier market and promote innovations and competitions by letting suppliers offer their solution to the required need.
Conformance specifications ensure that the product or service is exactly as required and that there is no variance.
Performance specifications outlines what the product or service is to do or achieve
- can be a short document, quick to prepare, cheap
- allows suppliers to innovate
- allows supplier competition
Conformance specifications details exactly what the product or service will consist of
- usually a long document, takes time to prepare, expensive
- usually difficult to prepare
- does not allow supplier to innovate
- limits supplier competition
- recipes, chemical formulae, engineering drawings
Net price excludes taxes
Gross price includes taxes
Quotations are usually provided in a net form where the price is shown without tax rather than gross, where the price includes tax.
When receiving a quote is important to check in what form the supplier has supplied the proposal.
The 5 rights of procurement and supply are a key way in which procurement professionals can check that all areas are covered when buying goods or services.
The Right Quantity The Right Quality The Right Time The Right Place The Right Price
TCA is total cost of acquisition
TCO is the total cost of ownership
TCO is more than simply price, it is the total you actually pay for goods and services, it is an obvious fact, yet a common ignored one, that a low price may lead to a high total acquisition cost. ( TCA, tooling, Insurance, Operation, Maintenance, Training, Storage, Disposal)
TCA relates to the amount of money an organisation has to budget in order to physically receive a product on site. ( Purchase price, Carriage and insurance, Lead time, Quality)
When a supply of a product or service comes from the same organisation, the supplier is referred to as an internal supplier.
Internal supplier do not have to work on the same site as the buyer.
Internal suppliers might be colleagues who manufacture a component for a finished product , or a colleague who are employed to run the catering facilities.
For a simple contract to be valid there must be intention, consideration and agreement.
Intention: all parties must have the intention that their agreement can be enforced by civil law. This means that if something goes wrong , one party can take legal action against the other.
Consideration: it is a promise by one party for an action by the other party. For example, consideration for the sale of a car would be the amount of money offered.
Agreement: in contract law the agreement is created through offer and acceptance.
A contract is enforceable in law and exists in every commercial transaction.
There is only one ever user in a supply chain - the end user
For a supply chain to work effectively it has to be managed.
Supply Chain Management aims to reduce costs, improve value and reduce risk
SCM adds value thought the process : price, delivery, storage, ethics, environment, sustainability, communication, quality
In a supply chain network, goods flow one way, whereas information flows two ways
Supply chain networks include managing flows
Physical flows include the movement and storage of materials and end products.
These are tangible parts of the supply chain network.
Information flows include organisational strategies and the way that they are communicated, the control processes within the network and the standards the chain should work.
The lower the Tier number, the closer to the buyer the supplier is
If a product is not produced by an OEM (original equipment manufacturer) it is referred to as an after-market or pattern part. OEM’s sit at the top of the supplier tiers
example:
- a car OEM needs an engine to fit in the shell of a vehicle
- A tier 1 supplier will supply the engine to the OEM. However, the Tier 1 supplier will not be able to manufacture and assemble all engine parts.
- A Tier 2 supplier will supply some of the parts of the engine to the Tier 1 supplier
- A Tier 3 supplier may supply some parts to Tier 2 supplier.
MRP is Materials Requirement Planning - system used in manufacturing environments
ERP is Enterprise Resource Planning -
MRP is an electronic system which can schedule orders, monitor inventory and manage the production process. Has 3 main objectives
- Ensures that the parts or materials needed for manufacturing and end products are available
- Establish when to place orders and schedule deliveries
- Keep inventory value as low as possible
MRP has now been suppressed by MRP II and organisations are moving towards ERP system which has evolved from MRP.
ERP includes many more organisational functions than MPR
- Accounting | Human Resources | Manufacturing | Supply Chain Management | Customer Relationship Management | Project Management | Procurement | Materials Management
Internal Stakeholder are within the organisation
External Stakeholders are outside the organisation
Mendelow’s stakeholder matrix identifies the 4 different groups of stakeholders
High power, low interest : keep satisfied ( investors, shareholders)
Low power, low interest : minimum effort ( small customers, small suppliers)
High power, high interest : manage closely ( key players, senior managers, government)
Low power, high interest : keep informed ( local activist groups)
A customer buys a product or service and a consumer is the end user
The 2 can be the same but not always
Procurement professionals are customers.
Individuals using an end product or service are consumers.
Carter’s 10 Cs
1 Competency 2 Capacity 3 Commitment 4 Control 5 Cash 6 Cost 7 Consistency 8 Culture 9 Clean 10 Communication
RFI ( Request For Information) is used to gather information before selecting which suppliers will be asked to bid.
RFQ ( Request for Quotation) is the formal invitation asking a supplier to submit a bid
RFI’s are sent by the procurement team to potential suppliers to gather information and asses their suitability.
RFI’s may refer to Carter’s 10Cs - useful to determine whether a supplier meets desired criteria
RFQ process is less formal than a ITT ( Invitation to Tender) and does not include a deadline date for quotations to be returned.
The procurement cycle is split into 2 stages
Pre and Post contract award
1 Understand the need and develop a high level specification
2 Market analysis and Make or buy decision
3 Develop Strategy and Plan
4 Pre - Procurement Market Testing
5 Develop documentation and detailed specification
6 Supplier selection to participate to tender
7 Issue Tender documents
8 Bid and tender evaluation and validation
9 Contract award and implementation
10 Warehouse, logistics and receipt
11 Contract performance and improvement
12 Supplier relationship management
13 Asset management and lessons learned
A response to an RFQ or ITT is an offer
When the buyer requests a catalogue from a supplier or views general information about a product or service, this is not an offer.
Supplier’s offer should contain all the information required for the buyer to make an informed decision as to whether it provides value for money.
Should be included: price, delivery, packaging, frequency, lead time, quality, minimum order quantity, payment terms.
Express and implied terms in a contract
Express terms are anything which is said or written that is agreed between the 2 parties
These will be specifically written into the contract ( price, delivery, packaging, frequency, lead time, quality, payment terms)
Implied terms are assumed to exist and are linked to common law. Such terms do not have to be mentioned in the contract. By law they are present even if not shown ( Legislation, Regulations)
Kraljic identified 4 types of suppliers and used to identify the cost and risk impact of working with each group.
Leverage suppliers
- vast competition
- low cost and easy to change suppliers
- utilities
Strategic suppliers
- critical supplier
- core products
Routine suppliers
- low value
- lots of work associate with these suppliers
- stationary
Bottleneck suppliers
- holds monopoly
- little or no other options
- low value
EDI is electronic data interchange
New technology that is incorporated into e-procurement
Is the electronic exchange of documents in an agreed format between organisations. This form of exchange removes the need for paper or people.
Is essentially one computer system communicating with another
Common documents that are exchanged using EDI
- purchase orders
- delivery notes
- invoices
