LO2 Demonstrate the application of the stages of the procurement process Flashcards
(125 cards)
1
Q
Pre-Contract Stages
A
- Define Needs and Develop Specification
- Market Analysis / Make or Buy
- Develop Plan and strategy
- Pre-Procurement Market Testing
- Develop Documentation
- Supplier Selection
- Issue Tender
- Bid and Tender Evaluation
2
Q
Stage One:
Needs can be established by
A
Low Stock (Warehouse)
Last of Something (Factory)
needing replacements (Maintenence)
Future Requirements
Recrtuitment
3
Q
Stage One:
Needs can be established by
(Stakeholders)
A
Consumers
Community
Legislation Changes
Technological Developments
4
Q
Stage One:
Ways to raise a requisition
A
Verbal
Handwritten
E-Mail
Automated System
5
Q
Stage One:
Globalistion
A
The process by which the world is becoming more interconnected
6
Q
Stage One:
Requisitions must contain
A
Date Raised
Description, Quality requirements, spec
Supplier
Quantity
When
Where
Why
Who Identified
Who Approved
7
Q
Stage One:
MRP Systems
A
Material Requirement Planning
Ensures materials readily available
Keep inventory low
Plan manufacturing, procurement and delivery schedules
8
Q
Stage Two:
SWOT Analysis
A
Strengths
Weaknessness
Oppurtunities
Threats
9
Q
Stage Two:
STEEPLED Analysis
A
Social
Technological
Economic
Environmental
Political
Ethical
Demographic
10
Q
Stage Two:
SWOT and STEEPLED are useful for deciding
A
When is the right time
What quantity is economically viable
Which currency to use
Make or Buy
Re-sourced ?
Replaced?
11
Q
Stage Two:
Porters Five Forces
A
Competetive Rivalry
Threat of New Entrants
Threat of Substitutes
Power of Buyers
Power of Suppliers
12
Q
Stage Two:
Oligopoly Market
A
When a market sector has a few large organistions that supply the product/service
13
Q
Stage Two:
Monopoly Market
A
When a market is dominated by one suppliers
14
Q
Stage Two:
Duopoly Market
A
When only two suppliers exist in a market
15
Q
Stage Two:
Monopolistic Competition
A
“Imperfect Competition”
when there are many suppliers offering similar product but there are significant variances in quality, brand and design
16
Q
Stage Two:
Supply and Demand
A
Demand Increases and supply remains static, a shortfall occurs and can expect inflated prices
Demand decreases and supply remains statis, surplus occurs and reducing pricing occurs
Ideal market balance is where the demand and supply are equal
17
Q
Stage Two:
“Push and Pull Strategies”
Push
A
Based on forecasting requirements, the buyer will place PO’s in response to reqs raised against forecasted sales
18
Q
Stage Two:
“Push and Pull Strategies”
Pull
A
reacts to customer needs, usually working with JIT systems. “as and when needed”
19
Q
Stage Two:
Push and Pull Differences
A
Push:
Low Demand Variability
Low Product Personalisation
Economies of Scale
Low Manufacturing Variability
Low set up change costs
Lower lead times
Pull:
High Demand Variability
High Product Personailisation
Low Economies of Scale
High Manufacturing Variability
High set up change costs
Higher lead times
20
Q
Stage Two:
Supplier Segmentation
A
Integrated
Strategic
Collaborative
Transactional
21
Q
Stage Two:
Product Life Cycle
A
Sales
Costs
Profits
Customers
Competitors
22
Q
Stage Two:
Ansoff Matrix
A
can further test and analyse the market before placing orders.
Existing and New Markets V Existing and New Products
23
Q
Stage Two:
The 4 strategies of the Ansoff Matrix
A
Market Penetration
Product Development
Market Development
Diversification
24
Q
Stage Two:
ESI
A
Early Supplier Involvement
25
Stage Two:
Using ESI
Can gain info on:
Technical Advice
Cycle Times
Lead Times
Cost of Production
Quality
Potential Problems
Risk
Supply Chain
Life Cycle
26
Stage Two:
Advantages of ESI
Reduces Cost
Improves Specifications
Enhances Quality
Access to Tech
Promotes Innovation
Expert Knowledge
Shares risk
reduced development time
27
Stage Two:
Disadvantages of ESI
Supplier could unfairly influence buyer
could become reliant on supplier
Loss of Control
IP Risk
Market become aware of the plan
28
Stage Two:
Make or Buy
Consider Carters Outsource Matrix
Outsourcing is appropriate when spend is not core
29
Stage Two:
Offshoring
The relocation of business or processes (moving business to another country where product costs are lower)
30
Stage Two:
Advantages of Offshoring
Reduced Price
Increased profit
Helping a weak economy
Favourable gov policies
Access to raw materials
31
Stage Two:
Disadvantages of Offshoring
Loss of control
Risk of IP (copyrights, patents)
Ethical Concerns
Environmental Concerns
Loss of jobs in home country
32
Stage Three:
SWOT Analysis
Strengths
Weaknesses
Oppurtunities
Threats
33
Stage Three:
STEEPLED
Social
Technological
Economic
Environmental
Political
Legal
Ethical
Demographic
34
Stage Three:
Differences between ITT & RFQ
Sent for Bids / Quotes
Formal / Informal
Suppliers Pre-Evaluated / Not Pre-Evaluated
Complex procurement / routine products
High Value / Low Value
35
Stage Four:
Aim of Pre-Procurement Market Testing
How best to develop Spec
See if its the right time to enter the market
Cost implications and optimum contracting terms
36
Stage Four:
What to consider
Seasonal Trends / demands
Product Life Cycles
Macroeconomics
37
Stage Five:
Different Kinds of Documentation
Specification
Contractual Terms
Deadline
Quantity
Quality
KPIs
SLA Delivery schedule
Delivery address
38
Stage Six:
Can identify suppliers by
Existing Relationships
Internet Searches
Prior Knowledge
Trade Shows
Recommendation
Marketing materials
Direct approaches
39
Stage Six:
Information that needs to be gathered on suppliers
Financial performance, Organisational structure, culture, Ethical policy, CSR, sustainability, Environmental Awareness, reputation, quality, global accreditations, location, technology
40
Stage Six:
A suppliers financial performance can be evaluated by
Credit Ratings
Statement of Financial Position
Reviewing liquidity
Reviewing profitability
Requesting references
Gearing Analysis
41
Stage Six:
The Current Ratio (Liquidity)
Calculates an organisations ability to pay short term financial obligations
42
Stage Six:
The Quick Ratio (Liquidity)
Acid Test
Aims to reveal an organisations ability to meet its creditors immediate demands
43
Stage Six:
ROI
Return On Investment
Profitability Ratio to evaluate the benefit of financial investment
Can be used to monitor performance of the investment
44
Stage Six:
Types of Organisational Structures
Flat
Hierarchical
Matrix
Virtual/Distributed
45
Stage Six:
4 dimensions of culture
Power
Role
Task
Personal
46
Stage Six:
Ethical Policies should include statements on
Bribery
Modern Slavery
Corruption
Fraud
Human Rights
Working Conditions
Conflicts of Interest
47
Stage Six:
ESG and CSR polocies should outline an organisations positive contribution to
Customers
Consumers
Investors
Community
48
Stage Six:
ESG Policies focus on
Legality
Business Ethics
Protecting the Environment
Protecting People
Charity Work
49
Stage Six:
Global Accreditations
ISO 9001: Quality Managament
ISO 100: Effective Environmental Management
International Labour Organisation: UN Run to promote fair working conditions
BRC: Standards in food
50
Stage Six:
Electronic Procurement Activity
E-Purchase Orders
E-Delivery Notes
Barcoding
Scanning
E-Payment
E-Tendering
E-invoicing
51
Stage Six:
Risk relating to a suppliers location
Political
Economic
Force Majeure
52
Stage Six:
Force Majeure includes
Excessive Rain
Earthquakes
Hurricanes
Tsunamis
War
Terrorism
53
Stage Seven:
A tender process would be used when
Large or complex project
Law requires it
Company policy states it
High value
large selection of bids required
lots of competition
54
Stage Seven:
Seven core stages to tendering
1. Decide which style tender to use
2. Prepare ITT
3. Send ITT
4. Recieve Bids
5. Evaluate Bids
6. Award contract and feedback
7. Contract Management
55
Stage Seven:
5 core types of tenders
Open Procedure
Restricted Procedure
Negotiated Procedure
Competetive Dialogue
Innovation Partnership
56
Stage Eight:
Ways of testing samples
Aesthetics
Durability
Weight
Size
Strength
Tolerances
Reliability
57
Stage Eight:
Conformance Specifications are often
Cheminal Formulae
Technical Drawings
Recipes
58
Stage Eight:
The Evaluations considers the following aspects of the bid
Price, Quality, Ethics, Sustainability, Risks, Payment Terms, WLC, Service Levels,
Location, Warranty, Quantities
59
Stage Eight:
EOQ
Economic Ordering Quantity
√ 2DS/CI,
Where D is annual anticipated demand
S is the order cost per order
C is the cost of the item
I is an annual carrying cost interest rate
60
Stage Eight:
2 main purposes of important duties
1. to give local or own-grown, produce an economic advantage
2. to raise revenue for the countries government
61
Stage Eight: The Organisations / treaties that aim to reduce the amount of import duties (promoting globalisation)
The World Trade Organisation
The North American Free Trade Agreement
The Trans-Pacific Agreement
62
Stage Eight:
Incoterms - EXW
Ex Works, named place of collection (usually suppliers premises)
On Cost to the buyer
63
Stage Eight:
Incoterms - FCA
Free Carrier, named place of delivery (often transit depot for the buyers chosen transport company)
64
Stage Eight:
Incoterms - CPT
Carriage Paid To, Named place of destination
65
Stage Eight:
Incoterms - CIP
Carriage and Insurance Paid To (named place of destination)
66
Stage Eight:
Incoterms - DPU
Delivered at Place Unloaded (named place of destination)
67
Stage Eight:
Incoterms - DDP
Delivered Duty Paid (Named place of destination)
68
Stage Eight:
Incoterms - FOB
Free On Board
69
Stage Eight:
Areas included in whole life costing
Purchase, Delivery, Installation, Training, Operation, Maintenence, Water, Energy/Fuel, Health and Safety, Disposal
70
Stage Eight:
Costing Mechanisms - TCA
Total Cost of Aqcuistion
71
Stage Eight:
Costing Mechanisms - TCO
Total Cost of Ownership
72
Stage Eight:
Costing Mechanisms - LCC
Life Cycle Costing
73
Stage Eight:
Costing Mechanisms - WLC
Whole Life Costing
74
Stage Eight:
Weighted Scorecard
A tool with a systematic and fair process for selecting suppliers, based on predetermined criteria
75
Post Contract Stages
9: Contract Award and Implementation
10: Warehouse Logistics and Reciept
11: Contract Performance and improvement
12: Supplier relationship management
13: asset management
76
Stage Nine:
Acceptance of Offers can be done by
Phone Call
Email
Ltter
Face to Face
Handshake
Nod of Head (Auction)
77
Stage Nine:
A contract can be
Verbal
Written
Implied
78
Stage Nine:
6 stages of forming a contract
Intention
Capacity
Offer
Consideration
Acceptance
Legally Binding
79
Stage Nine:
Advantages of Standard/Model Contracts
Saves time
Saves Money
Widely Accepted and understood by both parties
80
Stage Nine:
Disadvantages of Standard/Model Contracts
Bespoke terms not included
Better terms could be negotiated
Dont get experience in creating contracts
81
Stage Nine:
Implied Terms
Always present in a contract and are set by national law, do not have to be written or verbally agreed to be legally binding
82
Stage Nine:
Express Terms
Terms that are negotiated and created and can include
Price
Spec
Payment Terms
Damages
Exclusion Clauses
Indemnity Clauses
Breaches
Termination
Conflict Resolution
83
Stage Nine:
Negotiation Tactics
Take it or Leave it
Good cop bad cop
Salami
One Last Thing
Russian Front
Mother Hubbard
84
Stage Nine:
Salami
Buyer divides the concessions that they are willing to make on the price in small "bite sized" pieces to discuss with the supplier. May not realise they are conceding as much as they are
85
Stage Nine:
Russian Front
Two Offers presented but one will never be accepted as is unreasonable, this is explained first to make the second offer seem more attractive
86
Stage Nine:
Mother Hubbard
Buyer states that cannot offer any more than already stated
87
Stage Nine:
Retention of Title
clause in a contract that states when ownership transfers from supplier to buyer.
only applies to products
88
Stage Nine:
2 types of damage clauses
Liquidated damages: fixed amount of money payable due to a breach
Unliquidated damages: unfixed as amount of damamges cannot be known and is decided in court
89
Stage Nine:
Indemnity Clauses may include
Costs or debts
Loss or damage to buyers property due tp negligent or defective work
Business losses experienced due to suppliers poor professional advice
90
Stage Nine:
Indemnity Clauses
The other party will accept liability and risk for any loss that happens when carrying out the contract and will replace, repair or repay what has been lost.
91
Stage Nine:
Exclusion Clauses
Used in contracts to try and exclude one party, or to restrict the amount of liability that might come from breach of contract
92
Stage Nine:
Ways to terminate a contract
End of Contractual Term
Performance
Prior Agreement
Frustration
Breach
Bankruptcy
93
Stage Nine:
Contract Terms concerning conflict resolution
Negotiation
Reconcilliation
Mediation
Arbitration
Litigation
94
Stage Nine:
Effective Contract Mobilisation Includes
Clear Communication
Setting Clear Objectives
Liasing with stakeholders
Managing change
Looking for oppurtunities
Managing relationships
95
Stage Nine:
4 types of leadership suppliers may require (Hersey-Blanchard model)
Delegating
Supporting
Coaching
Directing
96
Stage Nine:
4 Stages of contract implementation (New Contracts)
Stage 1 : Transition
Stage 2 : Start Up
Stage 3 : Operations
Stage 4 : Management
97
Stage Eleven:
KPIs - SMART
Specific
Measurable
Achievable
Realistic
Time Bound
98
Stage Eleven:
KPIs can be
Qualiative or Quantiative
99
Stage Eleven:
Advantages of using KPIs
Supplier Motivation
Improved Communication
Improved Quality
Early Identification of risk
100
Stage Eleven:
Contracts can be changed by
an amendment - physical change in the existing agreement
An adendum - additional document is added
A schedule - an addition to the contract designed to be regularly updated
101
Stage Twelve:
ABC Analysis
A simplistic segmentation parachute based loosely on the Pareto analysis. Can be used to breakdown an organisations total external spend based on value so its resources are used to manage these expenditures and prioritised accordingly
102
Stage Twelve:
ABC analysis breakdown
A: represent 20% of the total amount of an organisations supplier base yet receive 80% of the total company spend
B: represent 30% of organisations suppliers yet receive 15% of the spend
C: Represent 50% of the organisations suppliers yet receive 5% of the total spend
103
Stage Twelve:
Kraljic Matrix
Kraljic can be used when deciding how closely to manage a supplier in stage 12
Leverage: high profit low risk
Strategic: high profit high risk
Routine: low profit low risk
Bottleneck: low profit high risk
104
Stage Twelve:
Key benefits of a collaborative relationship
Shared information
Innovation
Reduced defects
Improved quality
Continuity of supply
Stable supply chain
Cost reduction
105
Stage Twelve:
Joint Venture
A business agreement where two or more parties share and pool resources on a project and can be between a buyer and supplier, several buying organisations or between several supplying organisations
106
Stage Twelve:
Joint ventures include sharing
Ownership
Control
Risk
Profit
Loss
107
Stage Twelve:
Methods of managing supplier relationships
SLAs
KPIs
Management by objectives
Regular reviews and audits
Continuous improvement
Supplier development
Managing variations
Back up plan
108
Stage Twelve:
Applying continuous improvement methods can achieve
Reduced process time
Reduced Lead times
Improved Quality
Improved Innovation
Reduced Cost
Improved Sustainability
Improved Environmental practices
109
Stage Tweleve:
Single Point of Failure
A weakness in a process that if dysfunctional will automatically generate a failure
110
Stage Tweleve:
Five Rights of Procurement
Right Time, Right Quantity, Right Quality, Right Place, Rght Price
111
What can be used to conduct financial reviews on suppliers
Profit and Loss Account/Income Statement
Balance Sheet
Cash Flow Statement
112
Basic Formula on which the outcome of a profit and loss account is created
Gross Profit = total revenue - cost of sales
113
Profit and Loss / Income Statement
Highlights the income / revenue, costs and expenses that an organisation has incurred within the FY
114
Balance Sheet
Statement of financial position and can provide information of a suppliers finanial position at a particular point in time
115
Cash Flow Statement
Allows you to determine if a supplier has enough cash coming in to be able to pay its expenses and allows to assess the long trm strength of the organisation
116
Liquidity Ratio
Calculate if an organisation has sufficient assets to meet its liabilities
117
Current Ratio
Total Current Assets
Current Liabilities
118
Acid Test / Quick Ratio
Total Current Assets - Stock
Current Liabilities
119
Gearing Ratio
a measurement of how much the cost and quality of an organisations long-term funding is represented by long-term debt or loans, in relation to the equity of the business
120
Gearing Ratio Formula
Long-Term Debt
Shareholders' Equity
121
Benefits of Using financial statements to assess supplier performance
Security and continuity of supply
Access to innovation and investment
Avoidance of Supplier dependency
Ability to negotiate
122
Limitations of using ratio anaylsis to assess performance
Figures are historic
Inflation
Operational Changes
Variation
123
Margin
Profit given as a percentage of the sales price
124
Mark-Up
The amount of prfit expressed as a percentage of cost
125
Breakeven Point
The point where total revenue from sales and total costs balance exactly
