1.4 - Compare the sources of added value that can be achieved through supply chain relationships Flashcards
Added value
Non-cash releasing benefits generated via procurement processes and supplier relationship management. Also defined as product and service mix features which the customer values and is therefore prepared to pay extra for
Return on relationship investment
The financial benefits for a buyer of establishing, developing and maintaining buyer-supplier relationships
Name 5 examples of added value benefits that procurement can help deliver
- Cashable savings and/or cost avoidance which can have a direct impact on internal budgets
- competitive advantage over others who are not reaping the benefits created by collaborative relationships
- Through risk management - a greater knowledge of supply chain partners and their risks will improve this process
- Improved business efficiency
- Improve contribution and commitment to ESG factors and CSR
Who developed the value chain?
Michael porter
Value chain
A business model created by Michael Porter that details the set of coordinated processes, people and resources within an organisation which generates corporate value
Competitive advantage
A benefit that an organisation can use to outperform its competitors in the marketplace
What is the value chain made up of?
Primary activities and support activities
Name 2 steps that should be taken when analysing a company’s value chain
- Split all activities within the company’s value chain into primary and secondary activities
- Review each area, looking for processes that are wasteful, for example, double handling of invoices by the procurement function
Name 5 ways in which procurement can help to add value and generate a bigger margin for organisations
- Selecting a supplier and negotiating the best deal for raw materials/inputs and logistics, thereby reducing the cost of inputs
- Developing relationships with a key supplier to ensure continuity of supply of inputs
- Managing quality of inputs by monitoring supplier performance
- Managing inventory and stock control
- Supporting the other support functions by sourcing products and services that the organisation requires in order to undertake these functions
What is a value network?
A set of connections between organisations interacting with each other which benefits the entire group
Name 4 key points regarding value chains
- An organisation will add value to its inputs in order to create value for the customer
- This will generate margin (profit) for the company
- The activities in the value chain are interdependent, what affects one will affect the other
- Waste across the value chain should be eliminated
What are the sources of added value linked to?
The 5 rights of procurement
Five rights
- Quantity
- Quality
- Time
- Place
- Price
Name 4 ways procurement can influence the pricing that is achieved for a product or service
- Reducing the unit cost paid for the product or service
- Getting additional products or services for the same price; generally these are referred to as value adds
- Increasing the payment terms can improve the cash position of the buying organisation
- Mitigating a price increase that a supplier requests
Name the 2 main ways that a supplier can price a product
- Cost-based pricing
- Marked-based/demand pricing
Name 5 key elements to consider in specification development
- Ensuring that the user department has not over-specified the requirement
- Making sure that the specification is clear and unambiguous, that prices are not being overinflated due to uncertainty
- Ensuring that all spend with a supplier us captured under the contract and in line with agreed rates
- Reviewing whether any products could be substituted for non-branded alternatives
- Involving the supplier early on in the process
What follows the specification stage
Competitive tender
Open book costing
A process whereby one party agrees to allow the other access to its finances to scrutinise and analyse costs
Which suppliers would you undertake open book costing with?
Strategic and collaborative type suppliers
Whole life costs
An estimate used to help buyers determine the end-to-end cost of providing a service, mnaufacturing or procuring a product. Also commonly referred to as total cost of ownership or total life cycle costs. The use of the terms depend upon the industry and sector
Name 6 cost mechanism terminologies
- Pre-acquisition costs
- Cost of procurement process
- Transport/delivery/insurance
- Actual cost of an item
- Operating and maintenance costs
- Disposal costs
Name 4 limits of whole life costing
- Costs included for processes that will happen in the future are only estimates
- Not all the costs that will occur during the life of an asset can be forecast
- It can be costly to do
- It can be time consuming
Life cycle costing
Relates to all costs of acquisition, owning and running the asset but does not include disposal
Total cost of acquisition
Considers all the activities and the costs associated with the procurement of goods or services but does not consider the running or operating costs