AD4 - Category Management in Procurement & Supply Flashcards
1
Q
What 3 names are referred to when considering managing an organisations spend with 3rd parties?
A
Purchasing
Procurement
Strategic Sourcing
2
Q
When considering complexity of the spend, risk and market difficulty, what approaches can be taken?
A
Low: Purchasing is dictated by organisational strategy and cost savings are usually the measurable.
Medium: Procurement contributes to organisational strategy with a proactive approach considering WLC.
High: Comprehensive approach which drives organisational strategy
3
Q
What steps are involved in purchasing?
A
- Plan approach to market and evaluation
- Approach market and select supplier
- Negotiate and award contract
4
Q
What steps are involved in procurement?
A
- Specify requirements
- Plan approach to market and evaluation
- Approach market and select supplier
- Negotiate and award contract
- Manage contract and relationship
5
Q
What steps are involved in strategic sourcing?
A
- Initiate project
- Identify needs and analyse market
- Specify requirements
- Plan approach to market and evaluation
- Approach market and select supplier
- Negotiate and award contract
- Manage contract and relationship
- Review
6
Q
What 5 approaches to strategy did Henry Mintzberg identify?
A
- Plan: Strategy is a plan that delivers an objective
- Ploy: Strategy is an intended plan that influences a competitive situation
- Pattern: Strategy is an unintended plan that arises from consistent successful behaviour
- Position: Strategy is the position that an organisation takes within the market place
- Perspective: Strategy arises from an organisations culture and belief about itself
7
Q
What 4 elements are identified by the supply management guide to strategic sourcing that strategic sourcing addresses?
A
- Demand Management: Matching supply and demand to minimise waste in the supply chain
- Supplier Management: Proactive management of supplier relationships to secure long-term competitive advantage
- Total Cost of Ownership: Understanding the TCO to maximise value from the supply chain
- Sustainability: Ensuring that supply chain activities support the long-term operation of the organisation and the environment it operates within.
8
Q
Strategic sourcing may allocate elements of the supply chain to individuals. What elements are there?
A
Internal stakeholders Business units Customers Locations End products Services Projects Goods Services Supplier markets Risk/value based allocation
9
Q
How could you segment up business requirements?
A
Indirect - organisational expenditure which can’t be linked to the end product delivered to customers
Direct - expenditure within an organisation which is directly attributable to the end product
Capital - one time costs incurred in purchasing assets. It is accounted differently to operational expenditure as they contribute to the organisations long-term value.
10
Q
What is a Pareto analysis?
A
Categories are split up based on spend with the supplier to understand how much time should be spent there.
Category A: 80% of the spend in 20% of the categories of goods/services, strategic sourcing activities should be taken here
Category B: 15% of the spend between 20% and 50% of the categories of spend
Category C: 5% of spend is with the remaining 50% of categories
11
Q
What floors are there in a Pareto analysis when using it to consider how much time should be spent on a category?
A
This analysis is limited because:
- Fails to consider market risk
- Fails to consider the value delivered by the expenditure
- Fails to consider the value category management could deliver
12
Q
What is the Kraljics matrix?
A
- High Supply Market Difficulty, High Profit Impact: Strategic (Both parties need each other and are mutually dependent, quadrant sometimes referred to as relationship)
- High Supply Market Difficulty, Low Profit Impact: Bottleneck (Procurement seek long term contracts or to pay premium prices to ensure supply, sometimes referred to as critical)
- Low Supply Market Difficulty, High Profit Impact: Leverage (Buying power should be used to get the best price and most advantageous terms)
- Low Supply Market Difficulty, Low Profit Impact: Routine (Seeking efficient buying processes, sometimes referred to as Tactical, non-critical or acquisition)
13
Q
What tools could you use to manage a market spend?
A
Starting with the lowest spend, risk and market complexity:
- Purchasing (Reactive sourcing)
- Procurement (Tactical sourcing)
- Strategic Procurement
- Strategic Sourcing
- Category Management
14
Q
CIPS suggest strategic procurement has 4 phases, what are these?
A
- Planning: required to ensure organisational goals are understood and taken into account. Phase will include agreeing scope, governance and setting up the team.
- Formalisation: Involves sourcing activity including developing the business requirements, understanding the market, mapping the supply chain, tendering, contract negotiation.
- Implementation: Once contract placed implementation with the supplier will be required involving contract management and supplier relationship management
- Evaluation: Monitoring performance, reviewing and learning from the project.
15
Q
What steps are in the CIPS supply and purchasing model?
A
- Organisations vision, mission and values
- Organisations overall strategy
- Strategic sourcing analysis
- Proactive demand management
- Acquisition pre-contract
- Acquisition post-contract
- Renew or end contractual relationship
16
Q
What 3 elements should a supply chain strategy be made up of?
A
- Purchasing and Supply Management: considers objectives, activities and policies
- Operations: covers management of efficient processes, application of lean principles and inventory management
- Distribution: includes service levels, fulfilment and delivery
17
Q
What steps are in the “Develop the sourcing strategy” step of AT Kearneys model for strategic procurement?
A
- Profile the category: spend analysis, need analysis, supply market analysis. This is a time consuming research step of data gathering internally and externally.
- Selecting sourcing strategy: deciding the way in which to approach the market. Also identified 6 levers which can be used to drive cost out or deliver value (best price evaluation, volume concentration, product specification improvement, joint process improvement, relationship restructuring and global sourcing.
18
Q
What steps are in the “Implementing strategy and identifying potential suppliers” step of AT Kearneys model for strategic procurement?
A
- Generate supplier portfolio: identify all suppliers capable of meeting the business requirement. Selection criteria is set up to develop a short-list of suppliers.
- Select implementation path: having identified potential suppliers, step four involves engaging with the market using requests for proposals or tenders and identifying a shortlist of suppliers to take through to the next stage.
- Negotiate and select suppliers: the negotiation strategy will determine the number of suppliers involved in this step. This step is about ensuring you obtain the best outcome for your organisation. The more time spent preparing, the more confident and successful you will be.
19
Q
What steps are in the “Implementing contract and looking forward to future strategic sourcing” step of AT Kearneys model for strategic procurement?
A
- Integrate suppliers: implementing the contract and embedding the relationship
- Benchmark supply market: transition from old to new supplier and implementing new processes and procedures and performance measures. Conduct a lessons learnt for next time.
20
Q
What are the 7 steps in AT Kearneys model for strategic procurement?
A
- Profile Category
- Selecting sourcing strategy
- Generate supplier portfolio
- Select implementation path
- Negotiate and select suppliers
- Integrate suppliers
- Benchmark supply market
21
Q
What steps and phases are in the CIPS category management model?
A
Phase 1 - Kick Off
Step 1 - initiate and prepare
Phase 2 - Prepare and Strategy
Step 2 - identifying opportunities prioritising opportunities
Step 3 - prepare / present strategy
Phase 3 - Deliver Strategy
Step 4 - implementing changes
Phase 4 - Align and Improve
Step 5 - maintain
Step 6 - improve and enhance
22
Q
What technical skills are required at the “Profile the category” stage of AT Kearneys strategic sourcing model
A
Spend analysis
Supply market analysis
Market knowledge
23
Q
What technical skills are required at the “Select sourcing strategy” stage of AT Kearneys strategic sourcing model
A
Demand analysis and management
Strategy development
Value generation
24
Q
What technical skills are required at the “Generate supplier portfolio” stage of AT Kearneys strategic sourcing model
A
Supplier analysis
Whole life costing
Low cost country sourcing
25
What technical skills are required at the "Select implementation path" stage of AT Kearneys strategic sourcing model
Sourcing process
Cost analysis
Supplier selection
26
What technical skills are required at the "Negotiate and select suppliers" stage of AT Kearneys strategic sourcing model
Negotiation
Contract creation
Supplier selection
27
What technical skills are required at the "Integrate suppliers" stage of AT Kearneys strategic sourcing model
Risk management
Financial management
Sustainability
Responsible purchasing
28
What technical skills are required at the "Benchmark supply market" stage of AT Kearneys strategic sourcing model
Supplier performance management
Supplier segmentation
Supplier relationship development
29
How could you break down the elements of a skill?
Definition
Key activities
Tools used
30
What behavioural skills are used for strategic sourcing?
```
Analysis and decision making
Organising and planning
Communication and influence
Leadership and management
Change and strategy
```
31
What elements make up emotional intelligence (or EI)?
1. Knowing your emotions
2. Managing your emotions
3. Motivating yourself
4. Recognising and understanding other peoples emotions
5. Managing the emotions of others
32
What questions need to be answered in the kick off phase of the CIPS category management model?
```
What milestones are you working towards?
Who’s responsible for what?
What resources are needed?
Who are the stakeholders?
What’s the scope of the project?
```
33
What members or subsections might you have in a team?
1. Sponsor
2. Steering group
3. Category team
4. Stakeholders
34
What is a RACI matrix?
It determines who is:
1. Responsible
2. Accountable
3. Consulted
4. Informed
35
How could you segment category management?
Direct costs: Relating to end product
Indirect costs: Not relating to end product
Capital costs: Assets to be purchased
36
What is the supply and demand analysis model and what is it for?
Used for segmenting categories and identifying opportunities:
1. One customer, One supplier: Custom (a product or service designed specifically buy a supplier for a buyer.
2. More than one customer, One supplier: Proprietary (Unique features only available from one supplier)
3. One Customer, More than one supplier: Tailored (Products or services designed for the organisation)
4. More than one customer, More than one supplier: Generic (Standard products and services)
37
When you have categorised the market, how can you identify opportunities?
1. Evaluating the data (Historic spend analysis, analysis of future spend, contract status and relationship performance)
2. Interpreting the requirement
3. Assessing the supply market
38
What does considering the contract status involve?
1. The product or services sold
2. Volume or value of commitments
3. Remuneration (fixed fee / T&M)
4. Expiry Date
5. Cancellation terms
6. Other constraints (E.g. who owns equipment)
39
How can performance be measured?
```
Applying a rag status to quantitative / qualitative measures such as:
Delivery
Quality
Service
Price
```
40
What techniques can be used to identify the business requirements?
Going through each requirement and separating them into "needs" and "wants"
41
What is a useful way of categorising business requirements?
```
A - Assurance of supply
Q - Quality
S - Service levels
C - Cost
I - Innovation
S - Sustainability
```
42
When considering Total cost of ownership, what external elements are there?
Production: materials, labour, profit, overheads
Delivered: storage, insurance, transport, installation
Life Cycle: inspection, maintenance, disposal, repairs
43
When considering Total cost of ownership, what Internal elements are there?
Transaction: sourcing, ordering, invoicing
Miscellaneous: admin, supplier relationship management
44
What concerns are there when a team is first formed?
It is in a state of "Unconscious incompetence" that is to say it doesn't know what it doesn't know. Assumptions may be made and it is important they are properly investigated and data collected.
45
What 4 key elements of supply market analysis are there?
1. Supply market research
2. Supply and value chain analysis
3. Market force analysis
4. Technological roadmap
46
What 5 types of information make up supply market research?
1. Supply Market History: developments over time
2. Supply Market Profile: products and services included in the supply market, number of suppliers and market share, size of the market and geographic coverage.
3. Supply Market Players: major suppliers and buyers in the market and supply chain.
4. Supply Market Drivers: drivers of change in the market including cost, demand, capacity, socio-cultural, technological, economic, environmental, political, legal and ethical
5. Supply Market Dynamics: level of profitability in the market, stability and growth of the market and technology impact.
47
What tools can be used to undertake market force analysis?
1. STEEPLE
2. Porters 5 forces
3. Boston Matrix (uses growth rate and market share price to place suppliers into one of the following categories, stars, cash cows, dogs and question marks)
4. SWOT analysis (Internal strengths/weaknesses and external opportunities/threats)
48
What 4 elements make up supplier analysis?
1. Supplier profile, gathering data
2. Supplier financial analysis
3. Supplier pricing
4. RFI's
49
When profiling a supplier, what data can you gather?
1. General supplier information (general type, structure, geographic coverage, main sites or locations and number of employees)
2. Products and services (key markets and industry sectors served)
3. Business strategy (Business mission, vision, goals and objectives)
4. Key customers (top customers, customer references, total company spend and contracts with suppliers, supplier perception and customer positioning analysis)
5. Financial standing (annual sales, net profit and trends for profit and sales)
50
What methods are there for assessing a suppliers financial status?
1. Liquidity
2. Gearing
3. Profitability
4. Stock turnover
5. Debt and credit managers
51
What supplier pricing can be used?
```
Cost-plus pricing
Penetration pricing
Marginal Cost-plus pricing
Budget pricing
Value pricing
Target pricing
Open book pricing
Greed pricing
Market pricing
```
52
What data could be requested using an RFI?
```
General company information
Products and services
Financial details
Business strategy
Customers and other information relevant to the category being reviewed
```
53
What models can help when analysing data in order to create a sourcing strategy?
Portfolio analysis: otherwise known as Kraljics matrix which maps products and services against two key characteristics of supply market difficulty and profit impact. Each supplier is categorised into routine, leverage, bottleneck or strategic procurement.
Supplier perception analysis: maps attractiveness of your business to a supplier against value of your spend to them. This provides four types of accounts, core, development, exploitable or nuisance.
54
The objective of supplier analysis is to assist in developing a number of options for value improvement opportunities. What are 6 levers for value improvement opportunities?
```
Best price evaluation
Volume concentration
Product specification improvement
Joint process improvement
Relationship re-structuring
Global sourcing
```
55
What options must be considered in a sourcing strategy?
- Make vs Buy
- Integration
- Outsourcing
- Single / Dual sourcing
- Eliminate spend
- Go to market
- Different route to market
- Specification re-engineering
- Collaboration with existing suppliers
- Joint ventures
- Acquisition
56
Risks must be assessed for every sourcing option. What headings might you have in a risk assessment matrix?
- Option
- Description of risk
- Likelihood of occurence (H/M/L)
- Level of impact (H/M/L)
- Action to minimise risk
- Responsibility
57
The final step in preparing and presenting a strategy is to create a strategy document. What should this document include?
```
Risk assessment
Options analysis
Supplier perception analysis
Market forces analysis
Technology road map
Supply and value chain analysis
Supply market research
Total cost modelling
Scope
Governance
RACI
Category segmentation
Supply and demand analysis
Historic spend analysis
Forecast spend analysis
Contract status
Relationship performance review
Business requirements
```
58
The sourcing strategy should be based on what 4 elements?
1. Stakeholder support
2. Research and analysis
3. Assessment of the options
4. Application of an evaluation criteria
59
What steps are in an implementation plan?
1. Finalising the business requirement
2. Clarifying the evaluation criteria
3. Contractual planning
4. Engaging with the market
5. Evaluating responses from the market
6. Supplier selection
7. Negotiation
8. Agreeing the contract
9. Mobilisation
10. Transition
11. Roll-out
12. Contract Management
13. Relationship Management
14. End of project review
60
What different routes to market are there?
```
Competition (ITT's, RFP's, RFQ's)
E-auctions
Negotiation
Joint Process improvement
Relationship restructuring
```
61
What different e-auctions are there?
1. Standard reverse auction: a single requirement to be satisfied, where suppliers will offer to supply what is required for the lowest price.
2. Cherry-Picked auctions: suppliers choose which requirements they are interested in, from the list of those being auctioned, and bid solely on those.
3. Bundled auctions: requirements are bundled together and suppliers must bid for them all.
4. Dutch auction: the auction closes upon receipt of the first bid.
5. Cherry-Dutch auction: A multiple lot auction that closes on receipt of the first bid for that particular lot.
6. Japanese auction: auction starts at a pre-defined price point that is reduced in steps. Each supplier must accept the price step or they leave the auction.
62
What steps might you take when preparing for a negotiation?
1. Research and analyse information available.
2. Agree objectives for the meeting, determine a BATNA / walkaway
3. Identify supplier conditioning opportunities
4. Plan the negotiation including roles, influencing styles and techniques used.
63
What elements should be considered when preparing an implementation plan?
1. Project planning
2. Training & Development
3. Gate reviews
4. Benefits tracking (Cost avoidance, price reduction, efficiency)
5. Governance
64
What will a programme steering group handle?
1. Benefits tracking
2. People development
3. Reporting to the executive team
4. Programme communications
5. Programme plan
65
What considerations must be taken when developing a supplier relationship management implementation plan?
1. Reason for choosing SRM as an option
2. Segmentation of suppliers
3. SRM approach to be adopted
4. Governance structure required to support
5. Product service agreements to be used
6. Process for embedding new supplier relationship
66
What is segmenting suppliers?
Strategic suppliers - small number of close relationships
Preferred suppliers - 10 to 100 suppliers with regular reviews
Regulated suppliers - 10 to 10,000 low value transactional suppliers
67
How can mendelows matrix be used to map Stakeholders?
High power High interest: (Key players) the acceptability of procurement strategy will be of key importance to these people. It is important to build relationships with these people.
High power Low interest: (Keep satisfied) stakeholders should be kept on board so they do not use their power to make life difficult.
Low power High interest: (Keep informed) if stakeholders are kept informed they are likely to remain happy. This group can become useful allies
Low power Low interest: (Minimal effort) avoid antagonising so they stay un-involved.
68
What stages will involve gate reviews?
Kick-off
Business requirements definition
Options generation
Sourcing strategy recommendation & Sign off
69
Why is stakeholder buy-in so important?
```
They will need to be involved in:
Engage the market
Select supplier (s)
Transition
Roll-out
```
70
what areJohn Kotter and Dan Cohens eight reasons that stop change processes?
1. Allowing too much complexity
2. Failing to build a coalition
3. Not understanding the need for a vision
4. Failing to communicate the vision
5. Permitting road blocks against the vision
6. Not planning for short-term results
7. Declaring victory too soon and failing to anchor changes in corporate culture.
71
what areJohn Kotter and Dan Cohens Action plans to stop resistance to change?
1. Establish a sense of urgency
2. Create a coalition
3. Develop a clear vision
4. Communicate the vision and strategy
5. Empower individuals to clear obstacles
6. Secure short-term wins
7. Consolidate and keep moving and anchor the change
72
What are Dr John Yukls eleven proactive tactics for influence?
```
Rational persuasion
Appraising
Inspirational appeal
Consultation
Collaboration
Ingratiation
Personal appeal
Exchange
Coalition
Legitimating
Pressure
```
73
What are Professor John Kotter and Schlesingers six influencing approaches?
```
Education and communication
Participation and involvement
Facilitation and support
Negotiation and agreement
Manipulation and co-optation
Implicit and explicit coercion
```
74
How can you categorise stakeholders reaction to change?
Those who are against change happening
Those who let change happen
Those who help change happen
Those who make change happen
75
What activities can be done to use influencing tools?
Implementation workshop
Face to face meetings
Implementation presentations
Stakeholder forums
76
Professor John O’Brien identified a matrix to help decide a way in which the strategy should be pitched, what are the boxes?
Many / Varied stakeholders, simple change: (Box A) focus on why the change is necessary. Typically a medium length presentation.
Many / Varied stakeholders, complex change: (Box B) detailed source plan, focus on securing wide scale buy-in. Typically a lengthy presentation document.
Few stakeholders, simple change: (Box C) Simple source plan to secure go-ahead. Typically a short presentation.
Few stakeholders, complex change: Focus on how the change will be implemented. Typically a medium length presentation.
77
What 4 key elements will an implementation plan include?
1. Mobilisation - the process of preparing to implement new supply arrangements.
2. Contract transition
3. Contract management
4. Supplier management
78
What are Robert Miles 6 speed brakes which can stop change?
1. Cautious management culture
2. Business as usual management processes
3. Initiative gridlock
4. recalcitrant executives
5. disengaged employees
6. Loss of focus during execution
79
What 4 elements should be considered to achieve a successful implementation plan?
1. Vision
2. Plan
3. Roles and Responsibilities
4. Leadership support
80
When mobilising a contract, what must the contract manager be aware of?
```
Products and services to be supplied
Business requirements
Service levels
Timescales
Transition arrangements
Rights and obligations of both parties
Pricing terms
Suppliers implementation team
Contingency plans
Authority
```
81
What additional information may a contract manager require before implementing a contract?
```
Existing suppliers team to be involved
Internal stakeholders to be involved
Benefits tracking requirements
Project management requirements
Any history with the suppliers
Administrative procedures to be met
Contract management arrangements
Supplier relationship management arrangements
Exit strategy
Risk assessment
```
82
Supplier segmentation can determine how a contract should be measured. What segments are there and how would you manage them?
Strategic suppliers require supplier relationship management (SRM)
Preferred suppliers require contract management
Regulated suppliers require contract administration
83
What is involved in contract administration?
Uploading the supply contract into a database
Communicating the existence of the contract to stakeholders
Checking contract compliance
84
What is involved in contract management?
```
Operational performance
Monitoring performance
Quality and risk assessments
Management reporting
Contract administration
Obtaining stakeholder feedback
Conflict resolution
Benchmarking performance
```
85
Why is stakeholder feedback required?
Highlight potential problems
Identifies opportunities for improvement
Establishes a relationship with stakeholders
Provides input into the assessment of the performance of the contract
86
How can stakeholder feedback be gained?
```
Phone calls
Surveys
Focus groups
Meetings
Workshops
Multi stakeholder forums
Advisory panels
```
87
What metrics can be benchmarked?
```
Price per hour / per unit
Payment terms
Service levels
Delivery compliance
Dispute resolution
Environmental and corporate responsibility compliance
```
88
How may a performance gap be highlighted?
Stakeholder feedback
Supplier feedback
Supplier assessment
Contracts teams personal observation
89
What approached can be taken when a contract is placed?
leave that supplier to get on with it
Keep an eye on what is happening
Manage the suppliers performance
More broadly, understand the overall performance of the strategic sourcing or management within the organisation.
90
What 4 steps are involved in performance management?
1. Capturing data
2. Creating performance measures
3. Creating dashboards
4. Reviewing improvements
91
What data can be captured when assessing performance?
Performance can be measured against the following areas:
Procurement and supply performance, contracts/orders placed, savings made, value delivered, increased sales and improved management.
Category performance information will track category development - local, national and global, best practice, success of value for money opportunities and supply market price monitoring benchmarks
Contract Performance includes benchmarking or key performance indicators, the data is collected internally
Supplier Performance includes KPI’s, innovation delivered and value created, the data is collected from the suppliers
92
What conclusions could be drawn from data collection?
```
They’re performing
That’s an innovative idea
It’s more than we thought
We could do this better
That needs resolving now
Wow, wouldn’t it be great if…
They’re not performing
We didn’t expect that
They should do less of this
```
93
What dashboards could be used to track performance?
AQSCIS dashboard with % for the supplier in each area.
94
What 5 types of risks are there which can cause failure in the supply chain?
1. Process - the risks of disruption to the internal and external management processes that drive activities of the organisation.
2. Control - the impact arising from the use or misuse of rules, systems and procedures that govern the workings of an organisation
3. Supply - risks arising from suppliers being unable to fulfil their obligations
4. Demand - risks arising from sharp fluctuations in demand
5. Environmental - risks imposed by the environment of which the organisation has no control for example terrorism, earthquakes or collapse of an economic market
95
Why might an incident occur even after the risk was identified?
Perceptions - subjective nature of likelihood or impact.
| Analysis - determining the level of risk mitigation has been done incorrectly
96
What headings might you have in a risk register?
```
Risks
Probability
Impact
Remedies
Owner
```
97
What does an Exit plan need to consider?
```
Key internal contacts
Termination clauses in contracts
Business requirements being met
Alternative suppliers available
Risk and scenario analysis
Termination notice to be used
```
