L4M2 Chapter 2 Flashcards

Question

What are the key factors when analysing the financial market?

Answer 1

Objectives -Maintain stability, Increase efficiency, maintain standards of consumer protection, encourage investment and savings Drivers - Availability of capital, Monetary policies, Level of merger and acquisition activity, Earnings growth, Emergence of new markets Governance - Regulated by government but large institutions are increasly dominant as they merge products Ownernship - Partnerships, Shareholders Commodity or non-commodity - Insurance (commodity), specialised services (non-commodity)

Answer 2

Barrieris are high - Threat of new entrants is low Low level of substitue - but can change *Bitcoin Bargaining power of suppliers is low Bargaining power of customers is low Rivalry is high

Answer 3

Information and communication Professional, scientific and technical activities Administrative and support service activities Other service activities

Answer 4

Objectives - Achieve high customer service, Build customer relationships, Continuously improve processes, Empower staff Drivers - Availability of high quality staff, Increasing linkages, Differentiton Governance - Largely people-based businesses Ownernship - Franchises, Sole traders, Partnerships, Shareholders Commodity - Largely non-commodity Variability People (rather than parts/ products) Improve customer expenses Output How to measure Clear specifications Create loyalty quality & time bound Low start up costs

Answer 5

Barrieris are low - Threat of new entrants is high Low level of substitue Bargaining power of suppliers is high Bargaining power of buyers is low Rivalry is high, switching costs are low

Answer 6

Agricultural production - crops → Farms, orchards, greenhouses and nurseries Agricultural production - livestock → Farms, dairies and production facilities that raise livestock for sale Agricultural services → Soil preparation, crop services, veterinary services and management services Forestry → Tree farms, nurseries and rea-forestation Fishing, hunting and trapping → Commercial fishing and the operation of fish and game preserves

Answer 7

Objectives - Increase production, Support food security, Maintain high levels of food safety, grow food sustainable Drivers - Climate change, Changes in world population, The need to improve crop yields globally, Ethical procurement, Food standards on public health Governance - Lagre global food retailers Ownernship - Sole traders, Co-operatives, Shareholders Commodity - Largely commodity

Answer 8

Barrieris are high- Threat of new entrants is low There can be substitues for product Bargaining power of suppliers is high Bargaining power of buyers of large company is high but low in small industries Rivalry is high

Answer 9

Analyse Assess Find ways to maximise value

Answer 10

Segment the market into buying groups with similar needs and organisations whose products meet those needs.

Answer 11

The relative bargaining power of buyers and suppliers

Answer 12

The threat of new entrants and the availability of substitue products or services *High barriers → implication for procurement and supply is that there is no pressure on existing companies to reduce their prices

Answer 13

A tool for analyzing the diversity of markets - a four-box matrix that reflects the segmentation of spend based on an assessment of the value of the spend relative of a category to the complexity/supplier risk to acquire it. The Karlijic definition of a category's importance - is the profit impact of the category

Answer 14

Strategic: High importance & High complexity/ supply risk - Ciritical to own products or services, High complexity, Seek partnerships Leverage: High importance & Low complexity/supply risk - Many suppliers, risk of failure is low, use competition to drive down prices Critical: High complexity/supply risk & Low importance - Specialist items, capacity constrained, seek continuity of supply Tactical: Low complexity/supply risk & Low importance - Non-core items, simplify procurement process, aim to bundle items into larger contracts

Answer 15

Value of spend: 80/20 rule - does it make up 80% or more Importance Universality- is it used in many components Quality Impact Volume Company growth impact

Answer 16

Primary activities e.g. fast food outlet's primary activity is to prepare ingredients and cook food Support activities e.g. fast food outlet's support activites managing staff

Answer 17

The needs of one or more groups of buyers

Answer 18

Industries are collections of organisations whose bussines is to meet needs at a profit

Answer 19

It invloves gaining an understanding of how attractive an industry is to the business and a key way to do this is to use Porter's Five Forces model

Answer 20

Potential entrants - threat of new entrants Rivalry - among existing competitors Suppliers - Bargaining power of suppliers Buyers - Bargaining power of buyers Substitutes - Threat of substitue products or services

Answer 21

Many or equal-size suppliers Slow industry growth High fixed costs Lack of differentiation and switching costs Capacity is added in significant amounts High exit barriers - e.g. specialised assets, fixed cost of exit and social restriction such as unemployement

Answer 22

The cost of retaliation results in lower profits for all companies. Businesses need to make a profit in order to be able to stay in a market. How much profit is made depends on the amount of rivalry in the market. The greater the rivalry the more other companines will retaliate and try to win market share.

Answer 23

Buyer power is the ability of one or more groups of buyers to keep prices low and so take more of the profit that is available Buyers are more powerful when they are few and dominate the market, they know the product and its prices, they buy in large volumes and are able to use other products or service.

Answer 24

Introduction - Research and development Growth - increase sales Maturity - sales at peak but starts to slow down Decline - sales decline to low level - withdraw from market

Answer 25

To understamd their bargaining power. Buyer's motives can change during the life of a product

Answer 26

There are no substitues They are larger than the organisations in the industry The product or service is an important part of the value chain The product or service is differentiated Significant switching cost

Answer 27

To limit the price charged. The higher the price, orgainsations will look for a substitue that can meet needs at a lower price.

Answer 28

Relative value-to-price ratio - value of product or service provided in comparison to its prcie Switching costs - all costs involved from switching from one supplier to another Organisation's willingness to to switch

Answer 29

Resources - i.e. Finance Risk profile Technological understanding Previous substitutions Intensity of rivalry Buying orgainisation's strategy - low cost, differentiation

Answer 30

New entrants reduce the profitability of existing companies in the industry Barriers are: *Economies of scale *Product differentiation *Brand identity *Capital requirements *Access to distribution *Cost advantages

Answer 31

Direct Cost - cost of activities involved in making a product or delivering a service together with any materials or components used (can be fixed and variable cost) Indirect Cost - cost of any support activities (can be fixed and variable cost)

Answer 32

Company annual reports - Break even analysis sales, fixed cost, variable cost Market data - primary research and financial analysis Technical data - cost synthesis or should-cost analysis (procurement staff working with operations colleagues) Request for information (RFI) - asking suppliers for information on direct and indirect costs Plant visits - can show → how well the company is doing, how old the equipment is, the work practices, how efficient is the supplier's buying, are the building modern and pleasant Discount lists - discounts once break-even point is reached

Answer 33

The purchasing budget is important because it controls an organisation's cost. An important and essential input to preparing a budget is an understanding of the direct and indirect costs of the supplied item

Answer 34

Data is raw material Information is raw material processed to create a product useful to the user Example: useful information supplier's break-even point, data required would be cost of production for differenct levels of output

Answer 35

OWN-IT Outline - Be specific *Define what is already known (mind map) *Create the outline *Define any gaps Wide search - Google Narrow search - Skim read books (introduction and conclusion, diagrams, pictures, graphs, note main headings, mind map) Increase your stockpile of information - store useful information in one place *Interviews Transform your stock pile into new knowlege - 'theme it'

Answer 36

An effective way of getting information down on paper and then finding relationships between the pieces of information

Answer 37

Information to help answer key questions that determine the cost of what an orgainisation buys Which cost are both necessary and legitimate? Are the values for these cost items reasonable? Is the overhead allocation subsidising another item? Is the basis for allocating overheads reasonable? Has the supplier included allowances for contingencies? Are the profits sufficient to keep the supplier motivated and interested?