Objective 1.3 Flashcards

Question

Will procurement professionals also look for suppliers that promote total quality management?

Answer 1

This is a management approach that works towards long-term strategic success through complete customer and consumer satisfaction. TQM is based in the culture and attitude of the organisation and requires everyone to believe in the process. TQM includes continuous improvement.

Answer 2

- Focus on consumer - Continuous Improvement - Quality Improvement - Accurate evaluation - Involve all employees

Answer 3

A measurable sustainability assessment, similar to CSR but more measurable. Financial performance remains key and so can create sustainable credit rating for the organisation and investors.

Answer 4

Environmental, social and governance

Answer 5

An organisational sustainability framework to embed into strategy and operations and supply chains to have a positive global impact.

Answer 6

Corporate social responsibility

Answer 7

The suppliers abl, but the duce produce, orders and have sustarabiana requires pre-assessment, but the buyer needs to understand whether or not the supplier's organisation shares certain ethical values.

Answer 8

the extent of this compatibility can be tested by assessing key criteria criteria in the PQQ. This allows the buyer to determine, at an early stage, whether or not a potential supplier shares particular values or practices and allows any unsuitable tenderers to be eliminated.

Answer 9

In order to evaluate these criteria, they may request copies of the suppliers environmental, social and governance (EG&S) policies.

Answer 10

ESG is similar to CSR. CSR refers to the overall, big picture of organisational values and goals, whereas ESG encompasses the more measurable activities and their application at a practical level.

Answer 11

On suppliers websites or are available on request.

Answer 12

Mostly organisations right their own.

Answer 13

There is no legal requirement to produce or have an ESG or CSR policy, but it does represent good practice within industry.

Answer 14

• Contribute positively to the environment • Do not pollute the atmosphere Replace any natural resources that they use within their supply chain • Giving something back to the community where they are located

Answer 15

Buyers may choose to further assess suppliers in these areas, specifically looking at how the supplier's approach to ethical practice is embedded in each of their delivery of contracts. This could include confirmation that the supplier will adhere to contract clauses, laws and performance terms that support sustainable and ethical practice throughout the delivery of its obligations under the contract.

Answer 16

No, it is also equally important to ensure that they are economically viable.

Answer 17

Are the supplier's employees asked to work to a code of conduct? - Are the supplier's employees part of a trade union and if so, how is this supported in the workplace? - Do the supplier's employees have a good understanding of their rights? - Do the supplier's employees have a good understanding of their responsibilities in their role? - Are the supplier's employees trained to work with the safety of themselves and others in mind? - Does the supplier have a good understanding of its sub-tier suppliers' workplace conditions and practices? - Has the supplier declared that it has been convicted of a breach of the law regarding human rights, slavery corruption, etc., (if recognised by its home country)?

Answer 18

- Are the impacts of the product understood throughout its life cycle, from manufacture, throughout its life and in its disposal? - Does the manufacturing process have any environmental impacts (effluvia, spillage, waste, etc.)? - Is the product composed of materials that may cause harm or are not recyclable? - How are products transported when moved around the supplier's site or delivered to the customer? - Does the supplier possess an accreditation for working to a recognised international standard, such as ISO14000:2015? - Do the supplier's products pose a harm to health that should be explained by accompanying material safety data sheets? - Has the supplier declared that it has been convicted of a breach of the law regarding environmental damage, illegal disposal of waste, etc., (if recognised by its home country)?

Answer 19

- Has the supplier produced this product before? - Does the supplier have the time and production line capacity to produce the product? - Is the supplier able to offer any changes or improvements to the product's design, if required? - Does the supplier take a risk-based approach to quality management, holding accreditations for international standards such as ISO 9001:2015? - Has the total life cycle cost of the product been considered? - What other customers or sectors does the supplier deliver to, and what percentage of its order book do these make up? - Has the supplier declared that it has been convicted of a breach of the law regarding fraud, contractual disputes, etc., (if recognised by its home country)?

Answer 20

•Buyers will check potential suppliers to ensure they are free from modern slavery or child labour. Potential suppliers and their associated supply chain must not be involved in or have any links to modern slavery. Where the buying organisation has any concerns that this exists, the contract will not be awarded to the potential supplier •Buyers will check that potential suppliers work in accordance with the standards and policies set by the International Labour Organization (ILO). Suppliers should be able to show that they are working in accordance with the ILO regulations and standards to make sure that employees are treated fairly, have good working conditions and receive fair pay

Answer 21

Even if the buyer receives favourable responses at this stage, it is important that these are added to more detailed due diligence activities, which will allow for a more detailed review of potential and current suppliers.

Answer 22

The process of ensuring a prospective supplier is who they claim to be and is capable of delivering the services to the standard required. Due diligence tasks include financial checks, reference checks and ensuring the legal set-up of their organisation is correct

Answer 23

The 'ownership' and exploitation of humans in a workplace

Answer 24

The use of children to undertake work or other activities which can be illegal/ exploitative

Answer 25

A small part of, or examples of, the product that is potentially being supplied.

Answer 26

A potential supplier must have the tardical capabilities to manage the contrach Technical capabilities are the most important area, and without them, supporting criteria, such as quality assurance and ESG policies become irrelevant.

Answer 27

Should request samples to ensure that they meet specifications. The machinery owned or leased by the supplier must be technically capable of producing the volumes and batch sizes required for carrying out functions needed. This should also be assessed as part of the criteria. There must also be compatibly between the buying organisation's systems and those of the supplier. This should be checked as part of the selection process. If the systems are incompatible, there may be extra costs to resolve any issues. It is essential to consider the capabilities and limitations of the potential supplier's systems before considering them for any contracts as any incompatibility could result in delays or inability to supply. The additional costs may be a deal breaker.

Answer 28

This will advise the procurement professional whether the supplier has the funds to run its day-to-day business, and therefore whether it will be able to fulfil the buying organisation's orders. A supplier in a poor financial position may not always have the cash to buy raw materials, for example, and this may cause a delay in deliveries. At worst, if the supplier were to cease trading, the contract would not be fulfilled.

Answer 29

A credit check may be carried out through a third party. The agencies collate and analyse data on organisations to produce a report on their monetary affairs. The agencies also present the results in the form of a credit score or rating, which gives an insight into the supplier's financial stability and whether it poses a risk to the organisation.

Answer 30

It can request copies of organisational policies, go on site visits and request samples of products or services for consideration.

Answer 31

During this stage of the procurement cycle, the buying organisation will remove any suppliers from the list that would not add value, as this helps to reduce the risk to which the organisation is exposed.

Answer 32

A formal invitation sent to suppliers inviting them to make an offer to supply goods or services

Answer 33

An invitation to suppliers to bid on specific products or services

Answer 34

A situation where one party fails to deliver against the agreement made.

Answer 35

- poor quality - environmental damage - failed delivery - stakeholder dissatisfaction - breach of contract - financial concerns - ethical concerns - repetitional damage

Answer 36

To present prospective suppliers with a clear, accurate and dull description of the organisation’s needs and so enable them to propose a solution to meet those needs.

Answer 37

Yes, as this ensures the end product or service is of the right quality and for for purpose.

Answer 38

• If the product or service is not fit for purpose, it could lead to dissatisfaction for the end consumer, leading to requests for refunds or product recalls, which wil be costly for an organisation to resolve • If the product is of poor quality, it may mean faulty products are produced. This could cause accident or injury for the end user, leading to significant legal and financial implications for an organisation • The above could also have significant implications on an organisation's reputation, leading to a lack of trust in the brand, and jeopardising future products and sales

Answer 39

Selecting the wrong suppliers may lead to a breach of contract, which can be costly to an organisation in terms of both time and finance. Organisations will have to look at dispute-resolution methods to resolve the breach, delaying the fulfilment of the end need. If the contract is terminated, organisations will have to go through the entire PQQ and supplier selection process again to find a suitable replacement supplier.

Answer 40

• Environmental concerns, for example, using suppliers with excessive carbon emissions, who do not recycle or are irresponsible in their removal of waste materials, and those who use non-renewable materials •Social concerns, for example, the use of suppliers where modern slavery is found to be present in the supply chain, or those who pay their employees • Governance concerns, for example using suppliers who are found to have breach laws and legislation, or those who have a history of bribery and corruption

Answer 41

Yes, by conducting credit checks and evaluating suppliers against Carters 10 C’s.

Answer 42

The amount of money going into and out of the business.

Answer 43

Poor cash flow, as suppliers are unable to purchase raw materials and complements required to produce products and fulfil customer orders.

Answer 44

The inability of an organisation to provide its own products or services in a timely fashion, or to fulfil customer orders as required can impact organisational cash flow, as there may be delays in customer payment, hindering the flow of money into the business.

Answer 45

Ultimately organisations will have to start the PQQ process again, meaning any time and resources already invested are wasted.

Answer 46

A legal commitment with terms and conditions allowing the lessor (who owns the asset) to charge 'rental fees to a lessee (who will be able to use the asset). The terms and conditions will detail the responsibilities for maintenance, insurance and end-of-contract rights and responsibilities.

Answer 47

Poorly performing organisations may also have difficulty securing loans from banks and other financial institutions to enable them to invest in new equipment and up to date technology. They may also find it difficult to lease equipment or machinery if they are unable to make regular payments to the leasing company.

Answer 48

Helps gain an idea of what style of negotiation to use. For example if a supplier of in a strong financial position, they may not be keen to make concession within the negotiation as a supplier that would benefit from more business.

Answer 49

Internal and external factors

Answer 50

STEEPLED - social (I.e. culture) - technological - economic (I.e. interest rates and exchange rates) - environmental (I.e. climate) - political (I.e. government) - legal - ethical - demographic factors

Answer 51

- suppliers - customers - competitors - intermediaries - some public

Answer 52

The organisation

Answer 53

Against pre-determined objectives such as key performances indicators (KPI’s) and service level agreements (SLA’s)

Answer 54

An acronym to help remember the right external factors that affect an organisation or market

Answer 55

Document outlining the expected minimum level of service between a service provider and a client. It clarifies the scope of the service, responsibilities of each party and how to escalate among other factors. A service level agreement is legally enforceable if it is referred to in a contract.

Answer 56

Public and private

Answer 57

• Profit and loss account/income statement • Balance sheet • Cash flow statement • Chairman's statement There are several ways that these financial statements can be used to assess and make conclusions on the viability of suppliers.

Answer 58

Income statement

Answer 59

Document that summaries the revenues, costs and expenses that have been incurred within a financial period.

Answer 60

To generate profit

Answer 61

Whether the supplier is generating profit.

Answer 62

Gross profit = total revenue - cost of sales

Answer 63

The total amount of income received

Answer 64

The amount leaving the organisation to pay for goods/services that have been provided.

Answer 65

The total amount of profit before taxes and other deductions.

Answer 66

Costs associated with salaries, overheads and depreciation.

Answer 67

Any money leaving the organisation in relation to creditors loans.

Answer 68

The amount of profit made after expenses I.e. gross profit - operating expenses

Answer 69

The number of shares the organisation has.

Answer 70

The amount of money each share had earned in the financial period.

Answer 71

Revenue Total cost of sales Gross profit Total operating expenses Internet Taxation Net profit Number of shares Earns per share

Answer 72

A statement of financial position.

Answer 73

Gives information on an organisations financial position at a particular point in time. The purpose of a balance sheet is to show assets, liabilities and shareholder equity or shareholders funds.

Answer 74

The owner/s of the organisation residual claim once all debts have been paid.

Answer 75

Total amount of assets - the amount of liabilities

Answer 76

- cash - account receivables - inventory - pre-paid expenses

Answer 77

- vehicles - equipment - building and land - investment - parents/goodwill

Answer 78

- account payables - credit card debt - bank operating credit cards - accrued expenses

Answer 79

- Bank debts - Long term notes payables

Answer 80

Cash flow statements contain details about the amount of money that came into and went out of an organisation during its accounting period. The aim of a cash flow statement is to assess how well an organisation is managing its cash in relation to paying its creditors and funding new investments, such as fixed assets.

Answer 81

Operating activities - cost of materials - sales of goods and services - payment of salaries - payment of taxes Investing activities - interest received - payment of loans Financial activities - payments to shareholders

Answer 82

A procurement professional uses a cash flow statement to determine whether a potential or existing supplier has enough cash coming in to be able to pay its expenses, as well as to assess the long-term strength of the organisation.

Answer 83

The organisation’s revenues minus its total costs.

Answer 84

A solvency measure to determine whether an organisation is able to meet its liabilities (short-term debts) when they come due from net current assets

Answer 85

A measure of how the business is being funded, based on its ratio of debts to equity, quality of debt or cost of debt.

Answer 86

A measure of profitability that indicates whether a gain or loss has been generated compared with the initial cost

Answer 87

To conduct ratio analysis to give an overview of an organisation’s profitability, liquidity, and gearing.

Answer 88

• If an organisation is generating a profit, this shows that all of its costs have been covered • Shareholders desire a return on their investment and if an organisation is making a profit, they will get one • If an organisation makes a profit, it can return money to the business to protect its longevity •Without profit, a supplier may not be able to trade in the long-term • A lack of profit could result in a lower-quality product being supplied

Answer 89

Profitability ratios measure the extent to which an organisation has traded profitably over a period of time. A profitable supplier will be more desirable fo a buyer because it indicates that the supplier has a steady stream of available finances to purchase materials and labour required to produce their goods an services. In contrast, a supplier that is constantly losing money may run out of funding and not be able to fulfil the contract.

Answer 90

Liquidity ratios calculate if an organisation has sufficient assets to meet its liabilities. In other words, things that an organisation owns that could be sold to cover debts. There are different types of liquidity rations, some of which include inventory as an asset, and some which do not.

Answer 91

Gearing ratios measure the cost and quality of the proportion of an organisation's borrowing against its equity. An organisation that is considered to be highly geared has a lot of long-term or high-cost debt and should therefore be considered a risk. In contrast, low gearing suggests that an organisation is reling on equity capital or low-cost debt options, and should therefore present less of a risk, as they will have less difficulty coping in tough economic climates.

Answer 92

When evaluating suppliers and awarding contracts, procurement professionals should use a variety of methods to ensure they gain a full view of the position of the supplier. These methods should include (but not be exclusive to) financial statements.