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