Chapter 1

Question 1

What is the difference between Procurement, Purchasing & Supply?

Answer 1

Procurement is a strategic function and involves both purchasing and supply as well as added value, costs, logistics, quality etc

Purchasing is the act of physically ordering and buying something

Supply is the infrastructure which ensures the products or services get from the supplier to the customer

Remember, without procurement there would be no purchasing and without purchasing there would be no supply

Question 2

Remember, cost do not need to be monetary…

Answer 2

Time, material, effort, opportunity etc

Question 3

What is the difference between fixed and variable cost?

Answer 3

Fixed cost do not change with level of output, variable costs do change with level of output

Question 4

What is the difference between direct costs and indirect costs?

Answer 4

Directly - directly related to the job. For example, components, labour wages

Indirect - those not directly related and often referred to as overheads. Foe example, salary of support staff, rent of office space, mobile phones

Question 5

What are examples of capital purchases?

Answer 5

Machinery, buildings or land. In short, purchases which are supposed to be investment into the company efficiencies and outputs.

Question 6

How would you describe economies of scale?

Answer 6

Trend of cost per unit decreasing as output trend is increasing. This is by spreading the costs of fixed costs such as tooling or machinery costs spread over more units and just simply higher bargaining power of buying more raw material leading to volume discount.

Question 7

What are sundries?

Answer 7

Miscellaneous goods or services, usually of low value

Question 8

What various sectors exists according to CIPS?

Answer 8

Primary sector - extraction of raw materials

Secondary sector - manufacturing with raw material inputs

Finished goods/ Tertiary - selling of manufactured goods via Highstreet shops or online retailers or professional services i.e. law firms or banking

Quaternary - companies concerned with research and development, intellectual advancement i.e university

Quinary also known as third sector organisation (TSOs) - human service such as NHS, charities, NGOs etc

Remember, a production organization is one which make or manufacturers goods

Question 9

What is non stock procurement?

Answer 9

Non physical purchases such as services which are also intangible i.e. tertiary sector

Non stock procurement are often capital purchases

Question 10

Which two types of budgets does an organization use?

Answer 10

CAPEX - capital expenditure such as construction or purchase of machines/ equipment

OPEX - relates to operational expenditure i.e. marketing, finance and so on.

Capital purchase are assets of a business. They are purchase to help a company increase or maintain efficiency and output. They are often referred to as spending money to make money. Capital assets are often treated for depreciation which is treated as a cost of a company accounts

Operational purchases are those which keep a businesses day to day function running. For example, rent, raw material, salaries, insurance, transport.

Question 11

What are the 5 rights of procurement?

Answer 11

Quality
Quantity 
Time
Price 
Place

Question 12

What is ISO 9000?

Answer 12

Set of international quality management and assurance standards to help companies maintain an efficient quality system.

Question 13

What does ISO stand for?

Answer 13

International Organisation for International Standards

Question 14

What should you be most careful of when using standard, ISOs in specififcations?

Answer 14

The date of publication! An ISO number may be updated over time so everyone need to be working on the same version!

You could expressly state the ISO, standards date of publication and advise that version take precedent in the specification.

Question 15

Business Management ISOs

Answer 15

9001 - Quality management systems
27001 - Information security management
5001 - Energy management
14001 - Environmental management

Question 16

What is the purpose of the Kraljic matrix?

Answer 16

It distinguishes between different procurement strategies on goods/ service value and risk. It aimed to maximising buying power whilst minimising risk.

Make sure you can draw this.

It enables segmentation of category management.

Cost Impact axis refer to impact on profit
Supply Risk axis refers to number of supplier in marketplace , delivery risk, technology risk etc. Plotting on Supply Risk axis can be supported by PF5. Important link!

Question 17

What relationship strategies should be applied to the Kraljic Matrix?

Answer 17

Routine suppliers - adversarial/ arms length

Bottleneck suppliers- single source, long term contract

Leverage suppliers - closer tactical, outsourced

Strategic suppliers - Strategic alliance, performance based relationship with single or sole source, co destiny

Question 18

Remember, net price excludes tax. Gross price includes tax

Question 19

What Incoterms exist?

Answer 19

(EXW) Ex Works – goods are considered delivered at supplier premises. Supplier is not responsible for loading or transporting

(FCA) Free Carrier – the supplier is responsible for placing the goods in the hand of the carrier. At this point the buyer takes on the risk

(CPT) Carriage paid to – supplier is responsible for deliver goods to the carrier or an agreed intermediate

(CIP) Carriage and Insurance Paid To – Same as CPT but with insurance to that point

(DAT) Delivered at Terminal – Supplier delivers to a terminal of choice as well as unloading them. Risk is then passed to buyer.

Question 20

How many incoterm are there and what are they?

Answer 20

EXW - Ex Works
Goods are considered delivered at point of leaving supplier premises or to another named place. Buyer then assumes risk. Buyer must arrange export clearance and shipping

FCA - Free Carrier
Supplier is responsible for putting goods in hands of a designated carrier, at a named place chosen by buyer. Buyer than assumes risks and responsible for completing next shipping steps

CPT - Carriage Paid To
Supplier is responsible for delivering goods to a carrier. carriage is absorbed into product price. Buyer then assume risks and responsible for insuring items

CIP - Carriage & Insurance Paid
Supplier is responsible for delivering goods to a carrier and should ensure a minimal level of insurance covers the risk. Buyer then assumes risk.

DAT - Delivered at Terminal
Supplier is responsible for delivering goods to a named sea port and terminal and unloading them. Buyer than assumes risk and and responsible for completing next shipping steps

Question 21

What is the definition of Incoterms?

Answer 21

Chamber of Commerce published terms covering the allocation of risk between buyer and seller

Question 22

What is the definition of TCO/ Total Life Cycle costs?

Answer 22

Total cost of ownership (TCO) and life cycle costs are used interchangeably. They include all cost of owning an asset from acquisition to disposal.

Total cost of ownership (TCA) makes up TCO and is focused on the cost of getting the product to the buyer premisis. i.e. purchase price, transport/ insurance (incoterms), lead time, quality etc.

Question 23

What is the definition of an Internal Supplier?

Answer 23

An internal supplier is one which is owned by the company. Similar to a sister company/ division etc. Internal supplier are most often used by the company to support ‘core activities’

CIPS suggest internal supplier selection and relationship management should be treated the same external supplier. All aspects.

Question 24

What are the advantages of using an internal supplier?

Answer 24

Greater control and continuity of supply
Less dependent and parties external to the business
Both parties share common goals, culture and values, this likely to maintain a long term relationship
Higher quality control. Can influence it more
Potential for lower cost as internal supplier shouldn’t usually charge margins
Greater IP, copy right protection

Question 25

What are the disadvantages of Internal Suppliers?

Answer 25

Internal Supplier could be more expensive vs external supplier. Procurement need to benchmark costs
Argued that Internal supplier will charge fixed cost as well as variable cost. External may only charge variable cost as the goods/ services are being produced for other customers already.
If internal supplier does not charge for services or does charge without margin, where is there incentive to meet standards/ expectation of company?
Company may need to invest/ fund internal supplier to acquire machinery/ assets/ capital where an external supplier would already have these. No up front cost and the associated opportunity cost of working capital or money being spend elsewhere. Cash flow would also take a hit.

Question 26

Which 5 conditions must be met for a contract to exist?

Answer 26

Offer

Acceptance

Consideration

Intention to be legally bound

Capacity to contract

Question 27

What type of data make up KPIs?

Answer 27

Binary – yes/no or pass/fail results

Numerical – this is the most popular use. It is based on numerical results i.e., %

Qualitative/ subjective assessment – opinion-based assessments based on buyer or end user satisfaction.

Question 28

What is On Time in Full (OTIF)

Answer 28

A KPI to track reliability and constancy of ordered being delivered on time but also in full and not subject to missing or defective items.

Question 29

What is sustainability?

Answer 29

Support future ecological balance by not depleting natural resources to hinder future generation. Also not harming environment.

Question 30

What is CSR?

Answer 30

Corporate Social Responsibility - contribution to sustainable development by deliver social and economic benefits. CSR policies cover charitable work, ethics, behavior etc.

Question 31

What is a supply chain?

Answer 31

system of organisations, people and activities getting product of services from the source to the customer

Question 32

What is upstream supply vs downstream supply?

Answer 32

Upstream - getting raw materials needed for production

Downsteam - processing the raw material in to finished product

Question 33

Remember, there is only ever one customer in a supply chain. - the end user

Question 34

What’s the difference between supply chain and supply chain network?

Answer 34

Supply chain concerns its self with only the organization supply chain from raw material extraction to sale to consumer. Supply chain network goes one step further to link the buying organisations suppliers supplier supply chains.

Supply chain networks involves flows. There are 2 flows:

Physical - moving of goods. Goods flow only one way

Information - strategies, communication, control processes, standards etc. Info flows two ways.

Question 35

Remember, procurement is about obtaining products and services in response to a need, while supply chain is the infrastructure involved in physically getting the product of service delivered

Question 36

Remember, procurement activity finishes once product/ service has been paid for delivered and checked. Supply chain activity doesn’t end until finished product is passed to consumer

Question 37

What are tierd suppliers?

Answer 37

Tierd supplier are those in rank order of who is closest to the OEM. Think of car manufacturing. the higher the number the further ay the supplier is. T3 does not deliver to the OEM. T3 supplies, T2, T2 supplier T1, T1 supplies OEM

OEM can also be referred to as a pattern part

OEM are

Question 38

What is logistics?

Answer 38

incudes handling, packing, inventory, warehousing and transportation.

In bound and out bound logistics is concerned to the travel of product in relation the manufacturing point. i..e raw materials going to in to manufacturing is inbound, finished goods leaving manufacturing is outbound

Question 39

What is the definition of stakeholders?

Answer 39

any individual or group who have an interest in something or be affected by something.

Remember, there are internal and external stakeholders

Question 40

Can you explain the application nd quadrant of the stakeholder matrix?

Answer 40

Keep satisfied - high power, low interest. likely to be investor and shareholders who will only make noise if return of investment is poor

Manage closely - high power, high interest. Important to keep these people updated as well as consulted and seek their input to feel valued. They are likely to be senior managers or external powers from regulatory bodies such as government.

Minimum effort - low power, low interest. Not much to gain from closely involving these and keeping updated to annual occurrence is likely to be best. They will likely be small customer or suppliers will little to no influence over business decisions.

Keep informed - low power, high interest. likely to be those weak inside the organisation but very powerful outside of it i.e. activist groups. It is a good idea to keep these stakeholder informed to avoid causing media issues.

Question 41

What are carters 10c’s of the supplier evaluation model?

Answer 41

Competency
Capacity 
Commitment 
Control - quality processes 
Cash - financial stability 
Cost 
Consistency 
Culture 
Clean - environmentally friendly
Communication

Question 42

Which other framework support the step change process?

Answer 42

Lewins change model

Unfreeze - persuade and motivate employee to want to change
Change - support employee to embrace change
Freeze - employee adjusts to new change and working pattern