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CIPS L4M1 - Scope & Influence of Procurement & Supply > 1.2 - Analyse the different sources of added value in procurement & supply > Flashcards

1.2 - Analyse the different sources of added value in procurement & supply Flashcards

1
Q

Name the 5 rights of procurement

A
  1. Place
  2. Price
  3. Quality
  4. Quantity
  5. Time
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2
Q

Name 4 situations that could occur if the quantity procured is wrong

A
  1. Production could stop
  2. Retail consumers’ needs could be unfulfilled
  3. Warehouses could be overstocked
  4. The price the organisation pays for the product or service could be too high
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3
Q

Stakeholder

A

An individual or organisation with either an interest or an influence in, or who will be affected in any way by, the decisions and/or actions of a project, product, service or venture

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4
Q

What 3 things can supplying organisations do to make sure that the higher the quantity the lower the price

A
  1. Run machinery for longer rather than having to set it up several times
  2. Send one vehicle rather than making several deliveries
  3. Receive a larger amount of money in one transaction instead of several smaller ones
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5
Q

Name 2 things procurement professionals can do to define the standard of quality that is required

A
  1. Stating quality standards
  2. Producing a product specification
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6
Q

ISO 9000

A

A set of international quality management and quality assurance standards that help companies effectively document and maintain an efficient quality system. They are not specific to any one industry and can be applied to organisations of any size

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7
Q

What is ISO

A

Globally recognised standard for quality

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8
Q

Specification

A

Another way for a procurement professional to ensure that the standard of quality their organisation demands is met

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9
Q

Name 7 sections in a typical specification

A
  1. Description
  2. Drawing
  3. Colour
  4. Materials
  5. Quantity
  6. Packaging
  7. Quality
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10
Q

Name 2 types of spceficiations

A
  1. Conformance specifications
  2. Performance specifications
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11
Q

Name 4 advantages of a performance specification

A
  1. Can be a short document, quick to prepare, cheap
  2. Can be simple to prepare
  3. Allows suppliers to innovate
  4. Allows supplier competition
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12
Q

Name 4 disadvantages of conformance specification

A
  1. Usually a long document, takes time to prepare, expensive
  2. Usually difficult to prepare
  3. Does not allow supplier to innovate
  4. Limits supplier competition
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13
Q

Name 3 consequences for an organisation if products are not received or delivered at the right time

A
  1. Stockouts
  2. Additional costs - may have to purchase replacement goods, deliveries arriving at the wrong time & they may have to pay a penalty
  3. Relationships
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14
Q

Name 4 things organisations may find it a service is not provided at the right time

A
  1. Its premises are not cleaned, or there are no catering services for employees
  2. Production is impacted because waste is not properly managed, or there is loss of revenue or reputation if an outsourced event is not ready on time
  3. Machinery breaks down if the maintenance intervals are too far apart
  4. The organisation may have financial or legal exposure if professional advice is received too late
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15
Q

Name 3 things caused by failure to deliver to the correct destination

A
  1. Stockouts
  2. Dissatisfied customers who fail to get their goods may take their business elsewhere in the future
  3. Additional costs may be incurred if a delivery vehicle sent to the wrong destination has to be redirected
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16
Q

Name 4 ways a procurement professional has the opportunity to influence price

A
  1. Sourcing
  2. Aggregation of spend
  3. Obtaining price comparisons
  4. Negotiation
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17
Q

Request for quotation (RFQ)

A

An invitation to suppliers to bid on specific products or services

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18
Q

Exchange rate

A

The value of one currency compared with another, which can vary from day to day

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19
Q

Are quotations usually provided in net or gross form?

A

Net form where the price is shown without tax rather than gross where the price includes tax

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20
Q

Net price

A

Excludes taxes

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21
Q

Gross price

A

Includes taxes

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22
Q

Name 6 things the buyer may wish to negotiate

A
  1. Payment terms
  2. What is included in the price
  3. Non-recurring costs, such as tooling
  4. Price revision points in a contract
  5. Discount structures
  6. Carriage costs, and insurance risk
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23
Q

Incoterms

A

Series of commercial terms published by the International Chamber of Commerce, covering the allocation of costs and transfer of risks between the buyer and the seller. The various options are abbreviated to three-letter codes

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24
Q

On cost

A

A cost in addition to the quoted price

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25
Q

Exworks (EXW)

A

The buyer arranges collection and transport for the goods from the supplier, and is responsible for all costs of carriage, customs charges and insurance, including the risk of loading the goods onto the buyer’s vehicle. This is an on cost to the buyer

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26
Q

Free carrier (FCA)

A

The seller delivers the goods to a chosen destination, the buyer arranges for a transport company to collect and deliver to the final delivery point, with responsibility for the onward costs of carriage, customs, charges and insurance

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27
Q

Carriage Paid To (CPT)

A

Goods delivered with no official carriage bill to a destination agreed with the buyer. The carriage charge is absorbed in the product price. The buyer is responsible for the cost of insuring the goods throughout the journey, including, unloading and any import charges

28
Q

Delivered at Place (DAP)

A

The seller is responsible for delivery of the goods to the named place of destination, ready for unloading. Unloading is at the buyer’s risk and cost, and the buyer is also responsible for import charges

29
Q

Delivered at place unloaded (DPU)

A

The seller is responsible for arranging carriage, for delivering the goods, and for unloading at the named delivery point. Risk transfers from seller to buyer when the goods have been unloaded. The buyer is responsible for any import charges

30
Q

Delivered Duty Paid (DDP)

A

The seller is responsible for arranging carriage and delivering the goods to the named place, cleared for import and all applicable taxes and duties paid. Risk transfers when the goods are ready for unloading from the seller’s transport by the buyer.

31
Q

Total cost of acquisition (TCA)

A

Typically considers all the activities and costs associated with the procurement of goods and/or services but does not typically consider their running or operating costs

32
Q

Total cost of ownership (TCO)

A

Considers all the costs associated with the planning, tendering, procurement, contract management and importantly the disposal or termination of an asset or service. It does not usually look beyond this by considering the benefits derived from the goods or services

33
Q

Life-cycle costing (LCC)

A

Used traditionally within the construction industry, life cycle costing is normally associated with the costs of site clearance, constructing and operating a building or a large piece of capital equipment but rarely includes the cost of disposing of the building at the end of its life

34
Q

Whole life costing (WLC)

A

It includes all the elements of life cycle costing, but includes other factors. The term whole life costing is typically used in property or construction projects, so using this as an example would consider costs such as; the financing of the project, the acquisition of the land, as well as associated benefits and earnings derived from the building phased over its life. Disposal in these projects is often seen at the start of the cost model as ‘site clearance’, demolition, enabling works etc

35
Q

Name 4 costs included in whole life costing

A
  1. Acquisition costs
  2. Processing and maintenance costs
  3. End of life costs
  4. Non-value adding processes
36
Q

Whole life asset management

A

Management of resources and total costs associated with an asset over its whole life, including for example acquisition, purchase price, servicing, repairs, consumables, disposal and other end of life costs

37
Q

Name 5 stages in whole life costing where costs should be analysed

A
  1. Cost of planning/preparing
  2. Cost of acquiring/installing
  3. Cost of owning/financing
  4. Cost of operating/running
  5. Cost of disposing / recycling
38
Q

What does TCA normally analyse

A

Short term costs

39
Q

What does LLC and WLC normally consider

A

Medium and long term costs

40
Q

Is TCA a part of WLC/LLC

41
Q

Whole life asset management

A

The process of evaluating the total price and all associated costs of a product to make an informed decision as to which option will provide the organisation with the best value for money option

42
Q

KPIs

A

Measurable values that will enable a buyer to track how well a supplier is performing. KPIs are tracked over time and will enable the buyer to decide when remedial action may be needed to improve performance

43
Q

Enforceable in law

A

A court can compel those involved in the contract to fulfil their contractual obligations

44
Q

Internal suppliers

A

Linked by working either on the same site for the same company as the buyer

45
Q

External suppliers

A

Organisations that are separate business entities from the buying organisation

46
Q

Contract

A

A legally binding agreement between two or more parties in which one party agrees an action in return for something. A contract is enforceable in law and exists in every commercial transaction

47
Q

Name 2 things you would not know without a contract

A
  1. What should happen
  2. When things should happen
48
Q

Name 12 elements that should be covered in a contract

A
  1. Quality
  2. Delivery requirements
  3. Lead time
  4. Quantity
  5. Price
  6. Payment terms
  7. Packaging
  8. Term
    9.Currency
  9. Law
  10. Notice
  11. Dispute resolution
49
Q

Individual with capacity

A

A person who is legally able to enter into a contract because of their appropriate age and state of mind

50
Q

Name 2 types of KPIs

A
  1. Qualitative
  2. Quantitative
51
Q

Name 4 benefits of KPIs

A
  1. Improved supplier motivation
  2. Improved communication
  3. Improved relationships
  4. Sharing of common goals
52
Q

Name 2 limitations of KPIs

A
  1. Reduction in quality by suppliers rushing to meet quantitative KPIs
  2. Reduction of team work as suppliers focus on their own KPIs instead of common goals
53
Q

Name 4 methods buyers can use to assess the price and ensure the price on offer is right for their requirements

A
  1. Benchmarking through multiple RFQs
  2. Negotiation
  3. Open book costing
  4. Economic order quantities/volume discounts
54
Q

Name 9 non-monetary ways of adding value

A
  1. Additional features
  2. Brand
  3. Convenience
  4. Excellence of service
  5. Market development
  6. Reduced input costs
  7. Reputation
  8. Innovation
  9. Sustainability
55
Q

Name 3 ways a strong brand identity adds value

A
  1. Awareness
  2. Engagement
  3. Communication
56
Q

Name 3 things that may be classed as excellent service

A
  1. Paying attention to detail
  2. Considering things from a buyers viewpoint
  3. Going beyond what is required to assist the customer
57
Q

Name 4 ways innovation can add value

A
  1. Saving buyers money through suppliers discovering new ways to produce or supply
  2. Giving the buyer’s organisation more power in the marketplace because they are able to offer something unique to their customers
  3. Protecting the buyer from substitutions or new entrants by keeping one step ahead
  4. Improving supplier relationships through the sharing and developing of ideas
58
Q

Sustainability

A

It holistically considers the governance of an organisations ESG viability to ensure organisations exist for the long term, and the needs of the present are met without compromising the needs of future generations

59
Q

Name 4 ways risks can present themselves

A
  1. Suppliers may develop financial problems that affect their ability to supply
  2. Products may become unavailable due to product shortages or lack of raw materials
  3. Conflict could affect the ability to move products between countries
  4. There may be a breakdown in supplier relationships
60
Q

what is a risk matrix used for

A

To assess the severity of potential situations and to prioritise action

61
Q

CSR

A

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

62
Q

Exchange rate

A

The value of one currency compared with another, which can vary from day to day

63
Q

Sustainability policy

A

Outlines an organisations commitment to ethical and sustainable business practises

64
Q

Name 3 ways currency/exchange rates achieve value for money

A
  1. Have a strategy in place to mitigate the risk of exchange rate fluctuation
  2. Ensure awareness of the current value of currencies
  3. Agree a fixed exchange rate to get the best value for money
65
Q

Name 3 ways environmental factors achieve value for money

A
  1. Does the supplier have a sustainability policy?
  2. Does the product meet required environmental policies
  3. Bad practises could result in products being rejected by customers and orders lost
66
Q

Name 13 key areas to be considered when seeking to achieve value for money

A
  1. Currency/exchange rates
  2. Environmental factors
  3. Freight costs
  4. Maintenance costs
  5. Packaging
  6. Payment Terms
  7. Place
  8. Product/service price
  9. Quality
  10. Quantities/inventory
  11. Supplier reputation
  12. Time
  13. Warranty

CIPS L4M1 - Scope & Influence of Procurement & Supply (16 decks)

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