1.0 Flashcards
What is tactical/operational sourcing
Low level decision making
High profit, low risk items
Short term projects
Transactional relationships
What is strategic sourcing?
Top level decision making
High profit, high risk items
Long term projects
Collaborative relationships
How does sourcing aim to achieve the best value for money?
Price- important but early considered alone
Delivery - lead time should be acceptable and transport costs fair
Quality - fit for purpose and meets required specification
Ethics - suppliers should follow ethical codes of practice and ensure workers are treated fairly
Sustainability - sustainable in existence and promote environmental sustainability
Availability- products sourced need to be available. Competitive price becomes irrelevant if there is no availability
What are the Novack and Simco’s 11 stages of the sourcing process?
Identify needs
Define user requirements
Decide whether to make or buy
Identify purchase type (new buy, modified, straight re buy)
Carry out market analysis
Identify potential suppliers
Pre screen suppliers and create shortlist
Evaluate shortlist
Supplier selection
Final product or service delivered
Evaluate supplier performance
What is outsourcing?
Contracting an external supplier to manage and run a function that was previously handled in house
Reasons to outsource?
The external market can operate at lower cost
More suppliers
More expertise
Economies of scale
Reduces staff numbers
Removed assets and liabilities off the balance sheet
Converts fixed costs into variable monthly service costs
Improved focus - allows extra time to focus on core activities
Reduce risk - to move the requirements for managing services to another organisation
What functions or processes can not usually be outsourced?
Core activities
Why make in house?
Ir the product or service is core to the organisation
If they have capacity
Market prices for raw materials are favourable
Few or no alternative suppliers
Benefits of make decision?
Organisations strategy is to be self-sufficient
Enhanced control
Workforce remains stable
Continuity of supply
Reduced risk
More flexibility
Benefits of buy decisions?
Specialist knowledge
Innovation
Cheaper
Less inventory
Reduced overheads
What are the costs associated with sourcing?
Procurements salaries
Resources such as computers and telephones
Training
Development of policies and procedures
Time
How to procurement professionals determine the cost that should be attributed to a product or service?
Kraljic Matrix
What is the outsourcing decision matrix used for?
Measure strategic importance against operational performance. Helps to determine if something can be outsourced.
Low operational/ low strategic - eliminate function or task- contribute little to the organisations value
High operational/ low strategic - outsource - can be outsourced with minimal risk
High strategic/ low operational - strategic alliance - can be trusted to a strategic partner, but buying organisation must keep an element of control
High strategic/ high operational - retain in house - core to the organisation
Typical areas of outsourcing?
IT support
Catering
Cleaning
Marketing
Social media
Human Resources
Accountancy and payroll
What is insourcing?
To bring a function back in house after previously being outsourced
What is a PQQ?
Pre qualification questionnaire
A document sent to potential suppliers to assess their suitability against the buyers minimum standards of performance
Generally based on experience, capacity, financial standing and insurances
Aims to cover Carters 10 Cs
Competency
Capacity
Commitment
Control
Cash
Cost
Consistency
Culture
Clean
Communication
What is supplier appraisal?
Carried out after PQQ. It evaluates a suppliers ability to carry out a contract in terms of quality, delivery. Price and other contributing factors.
What are the risks of not caring out pre qualification and appraisal processes?
Poor quality
Failed delivery
Breach of contract
Ethical concerns
Environmental damage
Stakeholder dissatisfaction
Financial concerns
Reputations damage
Macro environments?
STEEPLE
Social
Technological
Economic
Environmental
Political
Legal ethical
Micro environments?
Suppliers
Costumers
Competitors
public Intermediaries
What risks are associated with outsourcing?
Loss of control
Supplier reliance
Confidentiality
Quality
Reputation
Inflexibility
Cultural differences
What is single sourcing?
Sourcing from one supplier only.
Used when:
Supplier is a monopoly
Economies of scale can be achieved
Order quantities are small
One supplier offers outstanding value
for money against the competition
Tend to be partnerships or strong collaborative relationships
What is dual sourcing?
Sourcing from 2 suppliers
Used when:
There is a risk on one supplier not being able to supply
A product/service is critical
Tends to be collaborative in the form of strategic alliance
What is multiple sourcing?
Sourcing from many suppliers
Used when:
Supplier completion is vast
The supplier relationship is not critical
Constant supply is critical
Relationships not as critical so tend to be more transactional
Advantages and disadvantages of single and dual/multiple sourcing?
See saved photo
What are the 3 types of tender approach?
Open
Restricted
Negotiated
Explain open tender/open procedure
Most common
Used when expecting relatively limited interest
Advertised widely so anyone can bid
Well specified requirement
Explain restricted tendering/restricted procedure?
Two stage tending process.
Usually used when expecting a lot of interest
Specification clearly defined
Interested suppliers have to respond with an expression of interest. They then have to complete a PQQ.
Suppliers that meet the criteria will receive ITT
Explain negotiated tendering/negotiated procedure?
Only a single supplier or a few suppliers are approached based on a previous relationship or track record
Invited to join by invite only
Often used when there is only one bidder or the requirement is complex
Same process as restricted
Negotiating styles matrix
Buyers wants and needs/ supplier wants and needs
Low buyer interest/low supplier interest Avoid - supplier loses, buyer loses
High buyer interest/low supplier interest
Compete - buyer wins, supplier loses
Low buyer interest/high supplier interest
Accomodate - supplier wins, buyer loses
High buyer interest/ high supplier interest
Collaborate - buyer wins, support wins
Compromise - neither party wins or loses. They meet on the middle
What are the four stages of negotiation?
Preparation
Information exchange
Bargaining
Closing
What is intra - company trading?
Business conducted within a company. Between two departments or locations.
What is centralised procurement?
A structure where procurement for the whole organisation is carried out by a centralised function often from one central location.
What is devolved procurement?
Decentralised procurement is a purchasing structure whereby individual locations are responsible for their buying activity
What is international sourcing?
Standard product sourcing
Outsourcing
Offshoring
What Info does a PQQ entail?
Asks for details on the suppliers policies and situations
Quality assurance
Environmental awareness and sustainability
Technical capabilities
System capabilities
Labour standards
Financial capabilities
Credit rating scores
Also ask
Capacity
Labour
Transport
Internal staff
Communication skills
ISO 9001
An international standard for quality management
4 stages of the continuous improvement process
Known as Kaizen
Identify- opportunities in the process workflow
Plan - how can the current process be improved
Execute - implement changes
Review - how are changes working for the team
What are the seven wastes?
Motion
Inventory
Over production
Waiting
Defects
Over processing
Transportation
WOODMIT
Profitability ratios
Measures how’ well an organisation and trades profitably over a period of time
Gross profit margin = gross profit/ sales revenue
Note: sales minus direct costs = gross profit
Liquidity ratios
Measures is an organisation has sufficient assets to meet its liabilities
Current ratio = total current assets/ current liabilities
Should always be above 2
Quick ratio/acid ratio
Total current assets - stock (inventory)/current liabilities
Should always be above 1
Gearing ratios
Measures an organisations long term funding represented by long term debt or loans in relation to the equity of the business.
High gearing = long term debt
Low gearing = relies on equity capital therefore better
Long term debt + short term debt + bank overdrafts / shareholders equity
What age the 2 types of award criteria?
Technical and commercial
Technical:
Specification
Delivery
Quality
Commercial:
Cultural fit
Ethical standards
Sustainability
One set of criteria should not be prioritised over another.
What is the Pareto principle in procurement?
80% of the total spend is distributed between 20% of the suppliers.
ABC analysis
Suppliers split into categories ABC
A accounts for 20% of the total spend - highest level of spend - strategic
B smaller percentage of spend and more of them - closer tactical
C smallest percentage of spend and lots of them - transactional
Primary data?
Direct form source
Direct communication
Networking
Market research
Trade fairs and exhibitions
Can gain from these:
Product availability
Pricing strategies
Trends and forecasts
Contact details
Secondary data
Information from published research or indices
Economic indices
Supplier websites
Financial journals
Published surveys
Published price lists
What is commodity pricing?
The market average price charged for a product.
Commodities traded on a stock exchange can be divided into four categories:
Energy
Agricultural
Metals
Livestock
What can effect commodity pricing?
Supply and demand
Currency fluctuation
Political situation
Conflict
Force make her
Prices of competitors
Prices of substitutes
What do we use financial statements for and what’s included?
We use them to evaluate a suppliers financial stability
Contains 3 documents:
Income statements/profit and loss account. Shows a company’s trading performance in terms of revenue, profit, expenses and losses over a period of time - usually 12 months
Balance sheet. Shows a company’s equity, Assets and liabilities at a particular point in time.
Cash flow statement. Shows the generation and utilisation of cash during the accounting period in question.
RFQ
Less formal
Less complex requirements
Less detailed than ITT
Low to medium value contracts
Usually closed questions
Can contain:
Specifications
Technical drawings
Samples
Quantities
Delivery requirements
Length of contract
T&Cs
Details of how the suppliers quote will be evaluated
ITT
More formal
More complex requirements
More detailed than an RFQ
Medium to high value contracts
IT contracts
HR contracts
Construction contracts
Cleaning contracts
Catering contracts
What factors determines how we advertise requirements?
Value of the contract- high value can justify higher marketing budget
Strategic importance
Urgency of contract
Resources available
How can we advertise?
Professional magazines
Business journals
Newspapers
Supplier websites
Specialist tender portals
What has to be included in advertisements for requirements?
Awarding body/company
Overview of awarding company-body
Project description
Experience/qualifications/accreditations
Deadline
Contact
What is a RFI
Request for information
PQQ is a form of RFI
Gathers information about suppliers and their capabilities prior to a formal procurement process
Difference between RFI and RFQ?
See photo
What other departments may be involved in tendering?
Finance
Engineering
Sales
Logistics
Operations
How can recommendations of a tender outcome be presented?
Face to face convos
Email
Submitting a detailed report
Presenting a business case
What is the typical assessment criteria? Of quotations and tenders?
Price
TCO
TCA
Supplier compatibility
Environmental activities
Ethical conduct
Sustainable practices
Method of contract delivery
Advantages and disadvantages for weighted points systems
Weighted pour systems should always total 100
Advantages
Practical approach
Allows transparency
Not easy to manipulate
Can involve cross functional teams
High stakeholder engagement
Disadvantages
Time consuming to create
Reliant on numbers
May require software investment
Total objectify is impossible
Training may be costly
Area of added value?
Good quality
Short lead time
CSR policy
Environmental responsibility
Sustainability
Good communication
Positive relationship management
Good reputation
Positive brand awareness
Advantages and disadvantages of electronic systems such as E-requisitioning, E-catalogues, E-auctions and E-tenders
Advantages
Faster
Access to more suppliers
increased amounts of info
Fewer restrictions on working hours
Easier to work globally
environmentally friendly
Disadvantages
Less personal
Communications can be misinterpreted
Reliant on technology
Can promote a negative work/life balance
What is E-requisitioning
Used to raise and approve requisitions
Advantages
Faster process
Fill traceability
Saves time
Linked to E-purchase orders
Advantaged of e-catalogues
Easily accessible
Various perspectives
Live info
More detail
Feature on both intranets and the internet
Advantages sand disadvantages of reverse auctions?
Advantages
Saves time
No need for face to face negotiations
Enhanced savings
Larger volume of suppliers
Suppliers can gain info on their competitors
Disadvantages
Technical issues
Impersonal
Supplier may bud lower than economically viable
Lack or relationship with suppliers
Suppliers may lose competitive edge
The tender process?
Define the tender
Send out RFI
Create pre qualified supplier list
Issue ITT
Hold a tender briefing
Evaluate bids
Supplier shortlist
Further due diligence
Select best value bid
Offer contract
Supplier accepts/rejects
Contract award
Some benefits of E-tendering
Free up time
Screening of bids
Environmentally friendly
Transparency
Auditing
Reduced risk
What UK regulations are the public sector bound by?
Freedom of information act 2000
UK public contract regulations 2015
What is public sector tendering in the EU and EEA governed by?
The 2014 public procurement directives under directive 2014/24/EU
What is a PIN?
Prior information notice
Allows organisations to release a notice to inform suppliers of a sourcing completion it intends to run in the future
Competitive dialouge
same as restricted tender but buyer can speak with suppliers after selection but before evaluating bids. An outline solution is provided to bidders and the buyers requirements are discussed during the dialogue phase. When the buyer has more clarity about how their requirements can be met a final specification is issued and final bids submitted and evaluated.
What 3 types of activities do NGOs in the not for profit sector undertake?
Fund caregiving activities - Red Cross, Marie Curiw
Highlight topical issues or causes and campaign to correct them - human rights violations, Greenpeace
Provides a service to subscribing members as a professional body or union - Uk trade union
Benefits of international trade?
See photo
What documents and systems allow movements of goods through the EU?
T1 document - accompanies goods in transit for traceability for goods within the EU
Import/export licence - required to permit import or export of a product
Single administrative document- used to trace goods entering or leaving the EU
Bill of exchange
A receipt travels with the goods
Certificate of origin
Accompanies goods confirming origin
Carnet
Document permitting free movement of goods between specific destinations so inspection is not required.
Customers declaration form
Allows electronic submission of import and export requests
What reasons are there to limit importing goods?
Products known to be harmful
To protect infant industries so they can’t be damaged by competing and importers
Problematic importers
National defence products -subject to strict worldwide controls
How many intercoms are there?
11
7 for all modes of transport
4 for transport over water
Payment mechanisms used to reduce payment and delivery risk in international trade?
Open account - supplier deliver and paid later
Term/time draft - guarantee of payment from buyers bank. Once receipted short daly to inspect before paying
Slight draft - guarantee of payment from buyers bank. Buyer must pay as soon as receipted.
Letter of credit - supplier only paid when it meets the conditions set out in the letter
Cash in advance - buyer pays before goods received.
Definition of corruption?
Abuse or misuse of a persons entrusted position, power or authority for personal gain.
What are the two key types of corruption?
Bribery
Fraud
What is bribery?
An exchange of something of value by one party to enable a desirable outcome from another party
What is a facilitation payment?
Type of bribe also known as a grease payment.
Used to enable something to take place or speed up its progress
What is fraud?
When an individual deliberately misleads or tells lies to someone to achieve the outcome they desire at their victims expense.
Industries most affected by bribery?
The defence industry
The medical industry
The property development industry
The mining industry
What is embezzlement?
A type of fraud
The misuse of assets or items entrusted to a person for a particular purpose.
For example a company laptop is sold on for monetary gain after their company has issued them a new one
Components of the fraud triangle?
Perceived pressure - personal debt
Perceived opportunity - and situation or vulnerability that can be exploited
Rationalisation - internal dialogue that justifies the fraud
What forms of fraud are there?
Advance fee fraud - upfront payment for goods that are never delivered
Corporate fraud - targets an organisation
Identity fraud - false identity created or stolen identity
Individual fraud - targets one specific person
What UK organisations can you speak to for guidance on fraud?
National crime agency
Serious fraud office
Financial conduct authority
Which document was released by the UN in 1948 describing human rights?
The universal declaration of Human rights
How many human rights are listen in the Universal Declaration of Human Eights?
30
Definition of human rights?
Basic rights and freedoms that belong to every person in the world
Definition of modern slavery
Severe exploitation of people for personal or commercial gain
What is ethical sourcing?
Products sourced are obtained in a responsible and sustainable way. Workers involved are safe and treated fairly. Environmental and social impacts are taken into consideration
Five sections of CIPS code of conduct?
Enhance and protect the profession
Maintain the highest standard of integrity
Promote unethical business practices
Enhance the proficiency and stature of the profession
Ensure compliance with laws and regulations
ETI base code?
Employment freely chosen
Freedom of association
Safe and hygienic working conditions
No child labour
Living wages are paid
Working hours are not excessive
No discrimination
Regular employment
No inhumane treatment
Stands for Ethical Trading Initiative
Internationally recognised code of good labour practice.
3 classifications of business activity?
Core - keep in house
Complementary - support activities- should only be outsourced if full control can be maintained
Residual - non essential activities - outsource
Different types of selection criteria?
Quality assurance ISO 9001
Environmental sustainability iSO 14000
Technical capabilities - policies experience or qualifications
Systems capabilities
Labour standards - social and ethical
Financial capabilities
Credit rating
Other types:
Company experience and references
Insurance
Healthy and safety
Accreditation and certifications
Governance, polices
What does EBITDA stand for?
Earnings before interest, tax, depreciation and amortisation
Award criteria?
Price
TCO
Technical merit
Added value benefits
Systems - which technical or performance
Resources
Difference between selection and award criteria?
Selection critics assesses the suitability and capability of potential bidders
Award criteria assesses the bid itself - subject matter of the contract
What are hard commodities?
Resources mined from the earth
Oil
Coal
Metals
Water
What are soft commodities?
Natural resources that are grown- agriculture
Rice
Sugar
Cocoa
Palm oil
Beef
Pork
What is a RFP?
Request for proposal
A competitive enquiry document asking a group of suppliers to submit commercial proposals
When should you use competitive tender?
When there is completion in the market
Have time - lengthy process
Sufficient value
Freedom to pick whichever bidder wins
When should you not use competitive tender?
No completion in the market
Insufficient time
Value too small
Locked into existing supplier
Only one potential supplier in the market
How long can a competitive tender procedure take?
6 months
How long is the standstill period?
10 days
Regulatory bodies in the uk?
Competition and markets authority
Health and safety executive
Trading standards
Risks with intercoms
Whoever bears the risk remains liable for any damage or loss
What do intercoms do?
Define the point at which liability passes from supplier to buyer
Describe the four classes of intercoms?
Class E - EXW export
Class F - three Fs FCA, FAS FOB free
Class C - fours Cs CFR, CIF, CPT, CIP cost
Class D - three DS DPU, DAP, DDP destination
EXW intercom means what?
Excludes costs of transportation., shipping, insurance and customs
DDP intercom means what?
Includes the costs of transportation, shipping, insurance and customs clearance
Which intercom carries the biggest risk for the buyer!
EXW
Which intercom carries the biggest risk for the supplier?
DDP
What 3 parts make up TBL?
Triple bottom line concept
Social
Environmental
Economic prosperity
Known as the 3 pillars of sustainable development. People - social
planet - environmental impact
profit -economic focus
What are considered essential criteria of social value in the public sector?
Social criteria
Environmental criteria
What levels of ethical codes are there?
3 levels
Profession - organisation that provides governance to individuals within a given profession example-CIPS
Sector level - organisation that provides governance to companies providing specific services or products.
Company level - an organisations own code of ethics which govern its staff:
What contemporary ethics can a supplier be assessed on?
Social
Environmental
Economic. TBL
What risks does pre assessing the ethical and sustainability of suppliers prevent?
Reputational damage
Money wasted combing conflicts
Time wasted in resolving conflicts
Late deliveries
What is principle 4 under the UK Bribery act 2010?
Due diligence
How can due diligence be carried out?
Supplier provides info on a template with supporting documents
Visiting suppliers premises
Desktop assessment to find info online
Due diligence factors?
First impressions
Product or service quality
Qualifications of providers
Background checks
How can suppliers demonstrate their commitment to sustainable practice?
Mission statements, visions and values on companies website
Internal processes that govern how individuals work to uphold policies and mission statementS
Internal policies that govern the way the business works
Accreditations from professional bodies that certify ethical or sustainable practice
How can audits be carried out?
Face to face at supports premises
Structured series of questions aligned to contract requirements
A tour of suppliers workplace with observation s recorded
Interviews with members of staff
Disadvantages of audits?
Require more staff
Take more time
Cost more money to carry out
Info Only correct at one point in time
What elements should be considered when defining g he scope of an audit?
Time it will take
Period of time to be reviewed
Teams or functions the audit will be focused on
Work or activities to focus on
What process will be looked at
Any other elements
Benefits of audits?
Improved supplier monitoring
Opportunity for improvement
What info would be contained on a conflict of interest register?
Date
Names of interest of people the conflict is about
Details of their role and teams
Their relationship
Boundaries and conditions to be set
Which intercoms carry risks to supplier and buyer?
EXW and all the Fs intercoms carry biggest risk to buyers
All Ds carry biggest risk to supplier
