Chapter 1 Flashcards
Can you name each stage of the CIPS procurement cycle?
Remember, stage 1-9 is the sourcing process, 10 onwards is contract management
- Understanding the need and developing a high level specification - Remember, 5 rights and performance vs conformance spec here.
- Market/ commodity and options - market research, supplier research, monopolies or similar market structures, make vs buy, currency fluctuation, lead times etc. Ansoff matrix/ ESI
- Develop strategy/ plan - evaluate micro and macro factors porters 5 forces STEEPLE, SWOT analysis etc THEN decide whether to use RfI, RfQ, ITT, PQQ
- Pre procurement, market test and market engagement - extension of point 2
- Develop documentation - prepare relevant documentation RfQ, ITT, PQQ, T&Cs, SLAs
- Supplier selection to participate in RfQ or ITT - on site audit or RfI/ PQQ based. Docs should be based on carters 10c’s
- Issue ITT/ RfQ - restricted vs open tender
- Tender bid/ quotation evaluation - TCO, cross functional team, value for money etc
- Contract award and implementation - advise preferred supplier first incase they decline and you need to award to 2nd preferred. Then advise the unsuccessful ones. This stage also involved finalising contracting process to SoW and start contractual negotiations.
- for psychical purchases, area for receipting goods need preparing and area for storing products need preparing. Warehouse teams should be notified in advance of size, weight, packaging, numbers etc
- Contract performance review - suppliers performance should be reviewed against KPI and T&Cs on a regular basis - continuous improvement cycle
- SRM & SCM development - kraljic matrix can be used to prioritised what resources should be given to each supplier
- Asset management lessons learned - contract needs reviewing to see if it still meet the businesses requirement and drive value or if the procurement process needs to be restarted and implement another supplier or solution. Main point is that process doesn’t finish. Constant review of service or goods being fit for purpose is key to understand if process needs to start again.
Novack and Samco’s 11 stage of sourcing process is as follows. The CIPS proc cycle was based on this model. Novak’s stage three ‘make or buy’ is the same as CIPS proc cycle of ‘Market Commodity & Options’
Identify needs Define user requirements Decide whether to make or buy Identify purchase type (new buy, modified rebuy, straight rebuy) Carry out market analysis Identify potential suppliers Prescreen supplier and create shortlist Evaluate shortlisted suppliers Supplier selection Final product/ service is delivered Evaluate supplier performance
What factors should be considered when deciding whether to make or buy?
The product/ service i.e. is it a core activity?
The organisations current position? i.e. does the organisation have capacity to make this in house, do they have the expertise?
The current market situation? which would create economies of scale, make or buy? If market price increase will the organisation current volume enable economies of scale and cost savings or would they need to ‘buy’ as the supplier volume is far greater thus greater economies of scale driving cost savings.
The amount of competition? Does the organisation hold a lot of buying power in the market to drive down cost and secure stock to ‘make’? If the organisation does not have sufficient buying power in the market, then ‘buy’ would make sense as they can leverage supplier posotion. However, if there is little competition in the market the organization could be forced into ‘make’ because the single supplier available in the market could charge what ever they want, and would be cheaper to ‘make’ vs ‘buy’.
What is the definition of Outsourcing?
Contracting a supplier to supply a service which was once handled in house.
What are the advantages of Outsourcing?
Reduce overheads/ fixed costs
Reduced need to invest in new technology when they are not experts in the field. The wrong allocation of investment could be made. Outsourced suppliers will have a greater knowledge of this leading to value for money
No need to recruit additional staff or invest in continuous training
Benefit from an outsource supplier industry knowledge
Improved focus on core activities. Organisation can focus on activities which is best suited too to create value
Reduce risks in managing multiple services
Which activities should not be outsourced and why?
Core activities. those which makes the company competitive and need control of.
What are the advantages of Make decision?
Control over processes
Improved quality control
Workforce remains stable
No suitable ‘buy’ suppliers
Reduced risk
Easier to amend, design and volume
Might be cheaper than buy
What are the advantages of Buy decision?
Specialised knowledge made available
Technological advancements – cost effective through economies of scale
Small volumes are not cost effective to ‘make’
Might be cheaper to buy in than make
No capacity or knowledge in house
Less inventory
Reduced overheads
What are the common disadvantage of outsourcing?
Cost of procurement time analysing practicality of options
Cost of procurement tracking supplier performance
Potential cost of paying for dedicated contracts manager to manage performance
Risk of supplier poor performance
Analysis of outsourcing may not have been adequate thus, was not the correct thing to do to drive best value
What are the definitions for:
Monopoly - water utilities
Pure Monopoly - rare, where just one supplier exists
Sole Source
Single Source
Dual Source
Oligopoly - few dominant suppliers, high entry cost, little focus on customer, more focused of competitor movements
Imperfect competition - small number off suppliers in market, but product/services are not similar as supplier follow differentiation strategies. Monopoly and Oligopoly are both imperfect
Monopolistic competition - suppliers offer similar product/services but are not perfect substitutes. All suppliers are price makers
Perfect competition - large number of suppliers selling identical product/services (homogeneous), buyer knowledge is high with easy access to market information. Loe barriers to entry, all supplier are price takers
What environmental factor exist to suppliers and buyers?
Internal - (organisation stakeholders, processes, policies, limitations etc)
Micro - SSICC (Some public, suppliers, intermediaries, customers & competitors)
Macro - STEEPLE (Social, technology, economic, environmental, political, legal, ethics)
What is a SWOT analysis?
Useful tool to evaluate the external environment before finalising strategies.
Strengths - key skill sets
Weaknesses - areas that need improvement
Opportunities - Areas outside the organisation that could contribute to success
Threats - Areas outside the organisation that could cause problems to success
Remember, S&W are inside org and O&P are external to org
Which is tender process is most common in public procurement?
Restricted Tender Process - two stage process of an initial pre qualification questionnaire (PQQ) to create a shortlist of suppliers. If short listed supplier meet minimum requirements they will then be invited to tender a.k.a. ITT
Under Public Contracts and Procurement Regulation 2015, supplier are to be given a minimum of 30 days to respond to a PQQ. Buyer must adhere to this for the process to be considered legal
Following public procurement regulation, PQQ etc, there are 5 tender processes a buyer can choose from. Can you name them?
Open tender process - this is a one stage process. IF supplier number are limited the buyer will immediately issue the RfP/ITT. It’s important to remember that this has no PQQ state!
Restricted tender process - following the submission of PQQs, suppliers are then shortlisted for selection. Those selected with be sent RfP
Competitive procedure with negotiation - same as restricted but after initial RfP submissions there are subsequent rounds of proposals and negotiations . No more is allowed after final submissions. This is obviously very time consuming.
Competitive dialogue - used for complex requirements where the spec may be updated during the process based on buyer understanding developing and supplier influencing scope. PQQ would take place to short list suppliers. Supplier are then expected to submit final proposals.
Innovative partnership structure - often used for unique items which do not exist on market. Rather than asking supplier to bid against a spec they are to bid against capacity to research and development, pre agreed level of performance and maximum cost. There is no negotiation after final bid.
The only option whereby buyer may negotiated after final bid is competitive dialogue
Another option is for buyer to use a pre established framework agreement, whereby another buying organisation has completed the selection stage. Same as a preferred supplier list. Buyer would need to advise the tandem use of a framework in any OJEU advert. Using a pre existing framework is quicker as buyer only have to call off a mini competition.
What are the stages of continuous improvement?
Identify - areas for improvement
Plan - how can it be improved
Execute - implement change
Review - how are the changes working/ performing?
What relationship strategies should be applied to the Kraljic Matrix?
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
What is the Market Management Matrix and what does it shows us?
It is a model which combines both Kraljic Matrix and Supplier Preferencing Model.
It enables buyer to better understand where their requirement/ relationship is now and where they would like it to be. Thus start a plan to get there.
