2.3 - Compare the practical considerations of stakeholder management

Question 1

Early supplier involvement

Answer 1

The involvement of a supplier in the product development process from a very early stage in order to use the suppliers experience and expertise

Question 2

Cost modelling

Answer 2

A process that buyers use to understand all of the costs that make up a suppliers price. The model is used to understand how the cost is broken down across the production of a product or service

Question 3

Name 5 benefits of developing accurate cost modelling

Answer 3

1. It allows buyers to understand what makes up a suppliers costs, which ultimately result in the price it charges the buying organisation
2. Having undertaken cost modelling, the buyer understands the supplier’s pricing strategy
3. Having a better understanding of a suppliers costs increases the power of the buyer to negotiate
4. Accurate cost modelling can also be used as a baseline to calculate savings achieved, which contribute directly to a companys bottom line
5. Data from cost modelling provides a more accurate information base than is available where cost modelling has not been undertaken

Question 4

Name the 5 key principles to ensure accurate and robust cost models (Ask and Laseter 1998)

Answer 4

1. Capture cost drivers, not just elements of costs
2. Build commodity specific models to look at cost drivers
3. Consider the impact of whole life costs
4. Start with a simple model and only add complexity if it is required
5. Triangulate around data to improve accuracy

Question 5

Triangulation

Answer 5

A statistical concept based on understanding whether data is valid or not by reviewing information from multiple data sources. Data is considered to be valid if it is verified by two or more reliable sources of information

Question 6

Name 3 reasons why price fluctuations can occur

Answer 6

1. A product becomes scarce and demand outstrips supply
2. Increases in import duties or exchange rates increase product prices
3. Political instability

Question 7

Demand driven inflation

Answer 7

Price rises caused by an increase in demand often dealt with using monetarist economic principles

Question 8

Supply driven inflation

Answer 8

Price rises caused by a lack of supply side infrastructure and commonly aligned with Keynesian economic principles

Question 9

Describe price elasticity when demand for a product or service is largely unaffected by an increase in price

Answer 9

Price inelastic

Question 10

Name 5 techniques you could use when working with a supplier

Answer 10

1. Monitoring elements in the market across the whole value network of suppliers that could increase costs
2. Forward buying
3. Working with a supplier once potential increases in the suppliers prices are anticipated to help it mitigate increases from its supply chain
4. Working with a supplier on supply chain efficiency projects to remove waste and reduce costs elsewhere if increases are unavoidable
5. Preparing strategies to deal with increases

Question 11

Forward buying

Answer 11

This involves buying a quantity greater than the volume currently required in order to avoid future price increases

Question 12

Hedging

Answer 12

A hedge is a deal that a buyer can undertake to try to mitigate the effect of price increases. It involves buying similar quantities if the same product in two separate markets at the same time on the basis that a price increase in one market will be offset by a price decrease in the other market

Question 13

Option

Answer 13

A form of hedging where the organisation takes out an option to buy or sell at a given price on a given day or more flexibly in a given period

Question 14

Futures contract

Answer 14

A form of hedging where the organisation takes out a contract to buy or sell at a given price in a given day

Question 15

What 3 types of stakeholders will be involved in cross-functional teams

Answer 15

1. Internal
2. External
3. Connected

Question 16

Name the 4 stages of ESI (Handfield et al 1999)

Answer 16

1. None - no supplier involvement
2. White box - informal supplier integration
3. Grey box - Formalised supplier integration
4. Black box - design is primarily supplier driven, based on buyer’s performance specifications

Question 17

Name 3 things that should be included in the NDA before ESI starts

Answer 17

1. Sets out the key roles and responsibilities of both parties
2. It should specify how the supplier will be paid for any product design / development work
3. It should clarify ownership of IPR

Question 18

Intellectual Property

Answer 18

An intangible asset such as a process, created through human intellect; such assets may be protected by trademarks, copyright or patents. For example, inventions, literary and artistic works, designs, symbols and images

Question 19

Name 6 benefits for a buying organisation of involving its suppliers in ESI programmes

Answer 19

1. The supplier may be able to bring additional knowledge and innovation to the product design stage if the process, which could result in cost savings
2. Overall quality of the product can be improved
3. Performance can be improved
4. Product development costs can be reduced
5. Involving a supplier could increase the speed that a company is able to get a product to market
6. ESI can serve to further enhance the supplier relationship as the supplier feels itself to be a valued business parter through being involved in such projects

Question 20

Name 3 disadvantages and risks for a buying organisation of involving its suppliers in ESI programmes

Answer 20

1. Communication issues between the buyer and supplier as well as issues with managing the relationships
2. If the relationship breaks down there could be issues producing the product or service in the future
3. It is necessary to carefully select the suppliers that are invited to participate in ESI projects

Question 21

Name 5 benefits of knowledge transfer and innovation for a buyer

Answer 21

1. Cost savings, profitability and competitive advantage for being the first company to bring an innovative product or service to the marketplace
2. The development of relationships with suppliers that may result in more transfer of knowledge and innovation beyond the original project
3. Improvements to current products and services in the company’s portfolio
4. The opportunity for procurement to demonstrate the value that it can bring to the wider business
5. The development of cultural changes internally that promote the development of innovation and knowledge sharing

Question 22

Name 2 risks of knowledge transfer and innovation

Answer 22

1. The management of IPR is a risk, as information that provides the buyer with a competitive advantage could be leaked to competitors that the supplier works with
2. Bonte and Wiethaus (2005) - knowledge disclosure bears the risk of benefiting one’s own competitors due to opportunistic knowledge transmission through the common supplier

Question 23

Dynamic purchasing system

Answer 23

A contract for suppliers which is similar to a framework contract. Suppliers are organised by the types of goods and services provided. Suppliers can be added at any time. Suppliers can be activated at any time during the life of the contract or may not be activated at all

Question 24

Name 4 barriers of a DPS

Answer 24

1. Lack of interaction with procuring organisations
2. Over-specified tenders, as opposed to the use of outcome-based specifications
3. Low competencies of procurers and a lack of willingness to embrace new technology
4. Poor management of risk during the procurement process

Question 25

Describe relationship based KPIs

Answer 25

Qualitative

Question 26

Name 6 qualitative KPIs that can be used as common metrics to measure the buyer and supplier relationship (Damlin et al)

Answer 26

1. Trust 2. Power 3. Transparency and information sharing 4. Communication 5. Commitment 6. Cooperation

Question 27

How should you measure relationship based KPIs

Answer 27

On a scale of 1-5, with 1 being the lowest value and 5 the greatest

Question 28

Name the 5 stages in the cyclical process to manage buyer-supplier metrics

Answer 28

1. Define the KPIs 2. Measure the supplier against the KPIs 3. Analyse the buyer-supplier relationship 4. Identify areas for improvement 5. Ongoing monitoring

Question 29

Name 7 benefits of looking at common relationship measures and metrics according to Damlin et al (2012)

Answer 29

1. Enabling the buyer and supplier to be more competitive in the marketplace 2. Lower transaction costs 3. Reduction of opportunistic behaviours from both parties, which should improve information flows 4. Improved customer relationships and reputation 5. Improved profitability 6. Improvements in quality and operational alignment 7. Reduced conflict

Question 30

Business Continuity Planning (BCP)

Answer 30

A process that a company uses to develop a plan to enable it to recover from a disruption in the shortest possible time

Question 31

Risk appetite

Answer 31

The cultural willingness of an organisation to accept risk

Question 32

Single point of failure

Answer 32

An identified weakness in a system for which there is no immediate remedy

Question 33

Supply base rationalisation

Answer 33

When a buyer reduces the number of suppliers it has for a product or service. This is normally done as part of an exercise to cut costs. Buying from just one supplier will allow the buyer to leverage its spend and should result in reduced prices

Question 34

Name the 4 stages of business continuity system according to Gilbert and Gips (2000)

Answer 34

1. Risk identification - achieved via a risk mapping exercise 2. Risk assessment - reviews risk in terms of the probability of occurrence and the impact on the business if risks did occur 3. Risk ranking - Use the risk assessment scores to rank and prioritise the risks 4. Risk management - it will involve either risk taking, accepting the risk and attempting to mitigate against it, or risk transferring

Question 35

Name 4 key areas to review when fully understanding the risks around supply continuity

Answer 35

1. Ascertain which suppliers are critical suppliers 2. Are there any single point of failure like sole or single source agreements 3. Are there any internal dependencies to keep the supply chain functioning such as IT systems

Question 36

Name 5 ways a buyer can work with its supplier and internal stakeholders to improve risk management and continuity of supply in a variety of different ways

Answer 36

1. Include key internal stakeholders in supplier qualification and evaluation by involving finance in reviews of a suppliers' accounts 2. Risk could be reduced for core products and services by using a dual-sourcing or multiple-sourcing approach 3. A buyer could create a relationship with its key suppliers in which they are able to provide early warning of potential issues rather than hiding them until it is too late to resolve them 4. Stock could be held by either the supplier or a third party to minimise the impact of force majeure events 5. Buyers could enter into escrow agreements.

Question 37

Escrow account

Answer 37

A third party account used to facilitate an international transaction, managing the flow of trust and funds through a trusted independent intermediary often using a letter of credit

Question 38

Letter of credit

Answer 38

A document stating an agreement between the buyers bank and the sellers bank to transfer funds in exchange for goods or services in a contract on presentation of valid documents

Question 39

Name 5 advantages of risk mitigation and securing continuity

Answer 39

1. It ensures the survival of the business 2. It minimises financial losses from production stops and loss of customers to competitors 3. It minimises loss of good reputation in the marketplace 4. It supports the process of supplier relationship management 5. It encourages an environment of monitoring and planning, which displays good business practise

Question 40

Name 2 limitations of risk mitigations and securing continuity

Answer 40

1. Some risks may remain unknown until they have happened 2. Risk management can be costly and resource consuming, and many potential risks may never materialise