M8 Flashcards
What are the 10 stages of the CIPS Procurement Cycle?
- Identify the need (Requisition)
- Define the need (spec)
- Develop contract terms
- Source the market (identify suppliers)
- Appraise or pre qualify suppliers
- Invite tenders/quotes
- Analyse tenders and select supplier(s)
- Negotiate best value
- Contract award
- Post-contract award/supplier management
What are stages 1-9 of the CIPS procurement cycle classed as?
What is stage 10 of the CIPS procurement cycle classed as?
If stage 10 is not executed correctly, what can be lost?
Stages 1-9 are ‘pre contract award’ (sourcing process, identification and definition of need, sourcing planning, contract/spec/document development, market engagement, selection of suppliers, evaluation etc).
Stage 10 is ‘post-contract award’ (expediting, payment, contract/supplier management, supplier development, asset management.
The hard work of stages 1-9.
What do processes ensure?
Consistency Co-ordination Prevent conflict Efficiency Support compliance with good practice.
What does Stage 1 encompass?
Requisitions can be _____
Identify the need
User department notifies the procurement function and issues a requisition.
Requisitions can be challenged/clarified, where a procurement professional sees over-speccing, unnecessary variation or can suggest alternatives that will offer better value for money.
At Stage 1, what vital decision should be made?
What should remain in-house? What should be outsourced?
What decision grid can be used to decide what option to take between keeping in-house or outsourcing?
Make or Buy decision.
Core competencies should typically remain in-house (make). By outsourcing these activities, your organisation could lose a large % of the value/competitive advantage it provides.
Non-core competencies should be outsourced to leverage the increased capabilities of the supply market (buy). It may also be cheaper as suppliers can leverage economies of scale. Modern business practice favours specialist suppliers for outsourcing.
Ray Carter’s Decision Grid
At Stage 2 (Define the need), what should be done?
What are the 3 main mediums through which defining the need can be done?
What will Stage 2 require?
Establish a detailed description of the requirement, and draw this up in the form of:
Specifications – Statement of requirements which communicates the need. 2 main types are: conformance and performance. Think about the advantages/disadvantages for each.
SLAs (Service Level Agreements) – Agree service levels, schedules and the basis for charges in as much details as possible before the contract is signed. Services are variable and intangible etc, therefore the levels are hard to define. Disputes often stem from differing expectations between buyers and suppliers.
Contract terms
Defining the need will require cross-functional collaboration, where the user details technical requirements, whereas the procurement function adds value through supply market awareness, supplier contacts, awareness of legal/commercial aspects, value analysis/engineering, cost reduction, early supplier involvement (ESI) etc.
Stage 3 (Develop contract terms) - What do contracts do?
Contracts set out the roles, rights and obligations of both parties.
Exactly what the 2+ parties have agreed to.
Conditions that may alter the agreement.
Rights of each party if the other fails to do what they said they’d do
How responsibility or ‘liability’ will be apportioned if problems occur.
How disputes will be resolved.
Before a legally binding contract comes into existence, what 4 criteria must be met?
Agreement (Offer and Acceptance)
Capacity to Contract
Intention to create legal relations
Consideration
Contractual terms can be both:
Express terms – Clearly stated terms and recognised in the contract.
Implied terms – Enshrined in common law.
Each term of a contract can be classified as either a:
Condition – Vital term of the contract. Can claim damages AND cease contract.
Warranty – Guarantee that conditions will be enacted. Can ONLY claim damages.
What are exclusion clauses/disclaimers?
Exclusion clauses and liability clauses are not enforceable unless they are what?
Terms specifying that one of the parties will not be held liable for a specified outcome from the contract.
This prevents the other party from seeking a legal remedy in the event of certain events occurring.
E.g. “The contractor shall not be responsible for any injury, loss, damage, cost or expense if and to the extent that it is caused by the negligence or wilful misconduct of the client or by breach by the client of its obligations under the contract”.
Reasonable, therefore both parties need to be careful about the wording of any exclusion clause or limit to liability clause that they negotiate.
What are limitation of liability clauses?
Term in a contract that seeks to limit the liability of one of the parties for losses suffered by the other party. Limits the amount payable in the event of failure.
E.g. “In the event of _____ happening, the amount in damages claimed can be capped at an amount of £1,000,000.”
What are retention of title clauses?
As a general principle, in a contract for the sale of goods, legal ownership of the goods passes from seller to buyer at whatever time the parties intend it to pass.
This is usually when the buyer pays for the goods, but a contract may expressly stipulate the point at which the buyer acquires title (ownership).
A supplier may wish to stipulate that ownership passes only when goods have been paid for in full, so that it can repossess the goods if the buyer does not pay for them (or becomes insolvent). This is called a retention of title clause.
E.g. “All goods supplies under this contract will remain the property of the supplier until the buyer has paid for them in full”.
What are indemnity clauses?
Indemnity clauses are where one party is willing to accept liability for any loss suffered by the other party arising from events in the performance of the contract, and that it will make good the loss to the other party.
In other words, one party ‘indemnifies’ the other against losses that it might incur in a given circumstance.
E.g. “Party A shall indemnify Party B against all liabilities, costs, expenses, damages and losses suffered or incurred by Party B arising out of or in connection with [specific breaches of contract].”
When a breach of contract occurs, what can happen?
When a breach of contract occurs, the party at fault may accept liability, and offer a suitable remedy that the ‘injured party’ accepts.
If a disagreement occurs, and both parties blame each other for what goes wrong, the two parties should try to negotiate a settlement of the dispute. If they fail to reach such an agreement, the contract can be taken to external arbitration to find a settlement.
If external arbitration/’out of court’ processes fail then the injured party can make a legal claim for breach of contract, and seek a remedy through the courts.
What techniques can be used to settle legal disputes in a ‘quasi-legal’ format?
What are the 4 types?
Alternative Dispute Resolution (ADR)
Conciliation (Counselling) – Conflicts are aired in a discussion, facilitated by an impartial conciliator who manages the process and makes constructive suggestions. Objective is to find a mutually acceptable position and a ‘win-win’ outcome.
Mediation – May follow conciliation. If a voluntary settlement has not been reached, an independent mediator will consider both sides, hear evidence and then make a formal proposal or recommendation (which is not binding).
Arbitration – May follow unsuccessful mediation. Independent person considers the arguments of both sides, and delivers a judgement which is binding. Held in private, avoiding negative publicity. Speedier and less expensive. Win-lose outcomes.
Litigation – Legal proceedings resolved by the courts. Typically avoided by parties as legal fees are costly, can take a long time, and matters can be made public. Last resort. Win-lose outcomes.
What does Stage 4 (Sourcing the market) involve?
‘Sourcing the market’ means identifying//locating suppliers that may be able to supply the requirement. Typically involves monitoring the existing supplier base for performance, and if the requirement cannot be fulfilled, then new suppliers will be sought.
Suppliers may be shortlisted according to a variety of criteria (e.g. size, capacity, price, reputation, recommendation, sustainability policies).
Supplier appraisal; supplier evaluation; supplier quality assessment; supplier pre-qualification.
What does Stage 5 (appraising or pre-qualifying suppliers) involve?
This stage ensures that potential suppliers can actually perform the contract to the required standard.
Having a list of pre-qualified suppliers reduces the need for investigations, as the buyer already knows that suppliers on the approved list have been confirmed as capable of fulfilling the requirement.
Suppliers can be pre-qualified by using Carter’s 10Cs – Cost, Cash, Consistency, Control, Culture, Communication, Capacity, Compliant, Commitment, Competence.
Once a shortlist of potential suppliers has been identified, buyers may conduct more resource-intensive methods to reduce the list further (i.e. through supplier audits, site audits, capability surveys).
What does Stage 6 (Inviting Quotations or Tenders) involve?
What are the 2 main forms of tender?
This will be sent out to a selected list of suppliers or to everyone and will detail the requirement, to which suppliers are then invited to submit a proposal/price for the contract. Tenders should be assessed based on the price/quality mix and MEAT, not necessarily the lowest price.
The level of competition/process required may be depicted by thresholds:
Under £5k – No formal requirement for supplier selection.
£5,000 - £30,000 – 3 quote process
£30,000+ - Full competitive tendering process may be required.
Tenders are typically best-use for procurements that are both highly complex and highly valuable.
Tenders are typically one of the following:
Open tendering – ITT is widely advertised and open to any potential bidder.
Selective tendering – Potential suppliers are pre-qualified and a list of 3-10 suppliers are shortlisted for the ITT stage.
What does Stage 7 (Analysing Quotations or Tenders) involve?
When analysing returns, both the selection criteria and award criteria must be consistently applied, with equal treatment given to each submission.
The successful submission must be fully compliant with the selection criteria and be the best submission (based on the price/quality split) out of the other compliant submissions.
What does Stage 8 (Contract Negotiation) involve?
How can negotiation objectives be ranked?
A process of planning, reviewing and analysing used by a buyer and a seller to reach acceptable agreements or compromises which include all aspects of the business transaction, not just price.
In contract negotiations, the buyers’ main objective may be to obtain a fair and reasonable price for the quality specified, to get the supplier to perform the contract on time, to exert some control over the manner in which the contract is performed and to develop a sound and continuing relationship with good suppliers.
Negotiation objectives should be ranked as High Priority (MUST), Medium Priority (INTEND) and Low Priority (LIKE). Some of these objectives should be traded within the negotiation to determine where they can give ground or make concessions (Low priority). High priority objectives may be non-negotiable.
If one side’s low priority objectives coincide with the other’s medium or high priority objectives, there is significant potential for constructive bargaining.
What does stage 9 (Contract award) involve?
At this stage, the contract should be wrapped up by issuing documentation such as the: spec, ITT, pricing schedule, contract etc. The contract should be signed by both parties.
Where practical, all contract papers should be bound together in date order. Any subsequent contract variations should be attached to the original contract.
What are the sub-steps involved in Stage 10 (Post-award phase)?
What is it also known as?
What is also a key part of the post-award phase that adds a lot of value?
Sub-steps of Stage 10:
1) Need identified
2) Requisition received
3) PO issued
4) Goods inwards receipt
5) Invoicing received
6) Accounts payable (if invoices align with PO)
AKA Purchase To Pay (P2P) cycle.
Contract management
What does supplier management involve?
Supplier management involves rationalising the supplier base and selecting, co-ordinating, appraising the performance and developing the potential of suppliers, to build long-term collaborative relationships.
Positive and proactive management of supplier relationships is key, therefore communication is pivotal to check on progress and ensure issues or problems are discussed.
Supplier’s can be measured and managed by using ‘vendor rating’ systems whereby a checklist of key performance factors are assessed and rated. This will then categorise suppliers into areas such as ‘Excellent, Good, Satisfactory and Unsatisfactory’.
Buyer’s can also be proactively engaged in developing a supplier’s performance and capabilities to meet the buyer’s short-term and long-term supply needs.
Due to the expense and effort that can be involved in supplier development, buyer’s must be reasonably sure that they will make significant value gains from improving the supplier, their supply chain, quality, costs, culture etc. If not, it will not be worth it.
What are the 6 main tools/models for environmental analysis?
1) STEEPLED (Socio-cultural, Technological, Economic, Environmental, Political, Legal, Ethical, Demographic)
2) Porter’s 5 Forces Model - Competitive rivalry, threat of new entrants, threat of substitutes, buyer power, supplier power
3) SWOT Analysis - Strengths, Weaknesses, Opportunities, Threats. Maximise Strengths and convert threats into opportunities.
4) Ansoff’s Matrix - More related to marketing.
Market penetration – Selling more of their existing products in existing markets.
Market development – Trying to find new markets for existing products.
Product development – Develop new products for sale in existing markets.
Diversification – Developing new products for sale in new markets. (High risk!)
5) Kraljic’s Procurement Positioning Mix
Can be used to examine an organisation’s procurement portfolio and its exposure to risk from supply disruption.
Can be used for assessing what types of supplier relationships are most appropriate for different types of procurements.
Profit impact x Complexity
Non-critical items
Critical items
Leverage items
Bottleneck items
6) Mendelow’s Power/Interest Matrix
Level of influence x level of interest
Minimal effort, keep informed, keep satisfied, manage closely
What are the 4 different forms of competition that might be found in a market?
Perfect Competition - Set of conditions where no supplier has the market power to influence the price. There will only be one price for the good, determined by total market supply and demand. Never achieved in practice.
Monopolistic Competition - Imperfect competition, where there is a large number of suppliers producing goods which are differentiated in some way. This enables them to set slightly varying prices.
Oligopoly - Where there is competition between a small number of large suppliers of differentiated goods. These suppliers have considerable market power to set prices, and will work together to keep prices stable.
Monopoly - Where no competition exists at all, because a single producer supplies the whole market.
What does the demand curve show?
What is the equilibrium price?
If supply exceeds demand, prices will ______.
If demand exceeds supply, prices will ______.
As prices rise, demand falls.
Where producers wish to sell the same amount as consumers wish to buy.
Fall
Rise
What are the 5 main phases of the Product Lifecycle?
Development
Introduction
Growth
Maturity
Decline
Once key stakeholders are identified on Mendelow’s matrix, what should be devised for each?
What 4 things can this be broken down into?
Management strategy. Can be broken down into:
Goal analysis – What motivates these stakeholders? What are their goals/desired outcomes from your plans? What fears might your plans raise for them? Where might they support/oppose you?
Desired outcomes – What do you need from these stakeholders? What roles would you want them to play in a project or plan?
Stakeholder marketing and communication programmes – What messages will need conveying to these stakeholders? How can you increase your credibility with them? How can you ‘sell’ them the benefits of what you are proposing/doing to secure their ‘buy in’?
Relationship management – How will you keep your key stakeholders on-side/motivated? How will you win over neutrals/opponents?
