Objective 1.2 Flashcards
What is single sourcing and when is it used?
Single sourcing is where one supplier is contracted by the buying organisation to supply all the needs for an item. The single sourcing approach is used in the following circumstances.
- There is no other practical choice for the buyer
- Economies of scale can be achieved
- Order quantities are very small
- One supplier offers outstanding value for money against the competition.
The buyer may decide to single source even where there are several suppliers.
‘Single source enables logistical cost reductions as a result of scaled-down supplier base’
What is sole sourcing?
A non-competitive situation where there is only one supplier of goods or services who can fulfil the requirement of the buyer at a specific time. Sole source could be due to a patent or market regulation.
What is dual sourcing?
Dual sourcing is where two suppliers are responsible for supplying all the needs for an item to the buying organisation. Dual sourcing is used in the following circumstances:
- There is a risk of one supplier not being able to supply
- A product or service is critical to an organisation
What is multiple sourcing? What circumstances is multiple sourcing used?
Multiple sourcing is where many suppliers are responsible for supplying all the needs for an item to an organisation. Multiple sourcing is used in the following
circumstances:
- supplier competition is vast
- The supplier relationship is not critical
- Constant supply is critical
What are the 4 types of souring?
- sole
- single
- dual
- multiple
What are the supplier relationship like for single, dual and multiple sourcing?
- Single: must have partnerships or strong collaborative relationships as the buyer organisation is completely reliant on one supplier to fill the need.
- Dual: Relationship still needs to be strong and should be collaborative in the form of a strategic alliance.
- Multiple - the relationship is no critical as there are many options so the style is likely to be more transactional.
What are the advantages of single sourcing?
- maximum leverage can be extracted by giving the whole volume to one supplier
- strong relationship
- strong commitment
- good communication
- new product development
- innovation
- confidentiality
- high trust
- economies of scale
- cost effective
What are the disadvantages of single sourcing?
- risk of failure of supply
- price may inflate if there is no competition and the supplier is forced to do with a monopoly supplier
- restricted options
- over-reliance on supplier
What are the advantages of dual/multiple sourcing?
- easy to drive down cost
- switching between suppliers is easier
- wide knowledge and expertise
- low risk of failure
What are the disadvantages of dual/multiple sourcing?
- transactional relationship
- lack of supplier commitment
- lack of economies of scale
- no supplier loyalty
What does public sector mean?
A sector of the economy that is owned, financed and run by the government or state owned enterprises.
When a procurement professional wants to create a new contract what do they need to decide?
Whether to send an invitation to tender (ITT) or a request for quotation (RFQ) to potential suppliers.
What tends to be the more formal process used for a wide range of requirements when creating a new contact?
ITT
Which sector handles the vast majority of its high value contracting needs by using invitations to tender?
Public Sector
What is the generic tendering process?
- planning (i.e. budgets, project plans, procurement plans, market studies, public hearing info)
- initiation (tender) (i.e. tender notices, specifications, live items, values, enquiries)
- award (I.e details of award, bidder info, bid evaluation, values)
- contract (I.e final details, signed contract, amendments, values)
- implementation (I.e. payments, progress updates, location, extension, amendments, completion or termination info)
Tender documentation contains lots of information for potential suppliers which includes:
- company information
- specifications
- contract requirements including terms and conditions
- deadline for submission (if the submission is late then the offer will not be considered)
What are the several approaches to tendering?
- open
- restricted
- negotiation
- competitive dialogue
- innovation partnership
- competitive procedure with negotiation
Are bids submitted after the deadline considered by the buying organisation?
No
What is Open Tendering?
Open tendering is most commonly used globally. It is used when the buyer expects there to be relatively limited interest and so fewer bids to evaluate. The opportunity available to suppliers is advertised widely allowing any supplier that wishes to submit a bid. In some situations, suppliers may first express an interest and then bidders will be able to obtain an ITT.
When the procurement professional has received all the bids by the deadline, they evaluate the bids usually against predetermined evaluation criteria, and the one that offers the best value for money will be offered the contract.
What is restricted tendering?
The procurement professional advertises the opportunity for interested suppliers to respond with an expression of interest. Suppliers that have expressed interest are then required to complete a pre-qualification questionnaire (PQQ) to establish if they meet the required criteria of the buying organisations.
The suppliers that successfully meet the criteria set by the procurement professional will then receive the invitation to tender and be invited to submit their bid as an offer to the buying organisation. The difference between this and the open tender is that restricted tendering is a two-stage process. Restricted Tendring is used when the buyer expects there to be high interest from bidders. Restricted tendering enables the buyer to create a shortlist of suitable bidders that will process to a more detailed evaluation.
What is negotiated tendering?
A negotiated approach to tendering generally has the same initial process as the restricted style. The procurement professional advertises the opportunity to contract with the buying organisation and invites expressions of interest.
The difference is that negotiated tendering may only involve a single supplier or might include a number of suppliers where the requirement is more complex. This supplier may be chosen due to a previous relationship with the buyer; due to its specialist skill, being a sole supplier or a precise specification; or because it involves amending or expanding on an existing contract.
While negotiated tendering can reduce the cost and duration of tendering and allow the supplier to get involved in the design stages of a product, it can be difficult to reach an agreement that is considered fair by both parties due to the lack of competition. Negotiated tending also risks the buyer becoming complacent and reusing the same supplier, rather than seeking better terms elsewhere.
When is negotiated tendering likely to be used?
When there is only one bidder or where the buyers requirement is complex.
What is the short definition of open tendering?
The opportunity is widely advertised allowing any supplier to make a bid.
What is restricted tendering?
A two stage tendering process.
