Chapter 1.1 Flashcards
Analyse how business needs influence procurement and supply decisions
Liability
Being legally responsible for something
Business Case
A justification for a proposed project or undertaking on the basis of its investment and cost implications balanced against its expected benefits
Corporate Goals
The targets set by an organisation or company that will achieve the organisation’s mission or objectives
Straight Rebuy
Straightforward re-purchase of an item bought previously, rather than considering an alternative
Modified Rebuy
A product/service that has been sourced before but requires a slight change prior to being rebought
New purchase
The purchase of an item for the first time
Would a procurement team write a business case in isolation from the rest of the organisation?
No - never
What should procurement aim to do when developing a business case?
They should help to further the organisation’s corporate goals
What three possible scenarios is a buyer faced with when making a decision to procure an item?
Whether the item bought should be a…
1. Straight rebuy
2. Modified rebuy
3. New purchase
Approved supplier list
A list of approved suppliers who have the skills (for example, technical, functional or financial) to undertake the work
Call off
The purchase of an item using a framework agreement that has already been through a procurement process
Framework agreement
An arrangement that is put in place with one or more suppliers for the supply of a range of suppliers or services in which the prices (or a pricing formula) and terms and conditions are all agreed for the duration of the period of the arrangement
Volume discount
A reduction in the usual price when a minimum quantity is ordered (also called a bulk discount)
How is a straight rebuy transaction usually undertaken?
With an existing supplier on an approved supplier list
What type of purchase is a straight rebuy?
A routine one because it is for an item that is used continually in the operation of an organisation
Provide 3 examples of straight rebuys:
- MRO (maintencance, repair and operational) items
- Stationary items such as pens, paper and ink cartridges
- Raw materials such as steel and bulk chemicals
Describe the value and risk of a straight rebuy
Its often relatively low value or low risk to the organisation if there is a disruption in supply
Why are straight rebuys usually low value/low risk?
Because there is usually alternative suppliers available and the cost of switching is low
Do straight rebuys require any research into alternative products and alternative suppliers or any negotiation of new prices?
Only minimal
For straight rebuys what 3 tasks are only usually completed when re-letting the contract?
Research into alternative products, alternative suppliers or any negotiation of new prices
What kind of purchase are straight rebuys usually?
A call off from an existing contract or framework agreement
What does P-cards stand for?
Purchasing or procurement cards
How can organisations make purchases without having to use a formal procurement process?
P-cards
What are P-cards normally used for?
Low-value items
Provide an example of a modified rebuy
A product where the technical department may have modified the specification or the end-customer may have requested a change to the item. In addition, there may have been a change in the quantity demanded or in the purchase price
Provide 3 examples of modified rebuy
- A buyer sets a cost reduction target for the year and so attempts to get the same item for a lower price from the same supplier
- A buyer reviews the number of suppliers it has and finds that it has multiple suppliers for the same item - the buyer chooses one supplier and renegotiates terms to get a volume discount
- A change in regulations means that a product has to be modified and this requires changes to the specification of components that are procured
Why may a modified rebuy require more effort from the buyer?
Because there is a need to find an acceptable solution - the buyer has to use a certain level of problem-solving skills to achieve their objective
Name 3 items where modified rebuys are most common for:
- Components for production
- Consulting services using a consultancy that the organisation has used before but with a new brief
- Software bought on the basis of a number of users
Critical path
The sequence of steps in a project plan that together determine the shortest time to complete the project
Business Requirement
The activities that meet the need of, and provide value to, the business (also called business need)
Specification
A detailed description of the product or service required
Supply market
The marketplace in which suppliers conduct business
Key suppliers
Externally located suppliers - either people or organisations - who are essential to the successful delivery of a business’ objectives
Invitation to tender (ITT)
A formal invitation sent to suppliers inviting them to make an offer to supply goods or services
Provide 3 examples of where new purchase activities occur when the organisation identifies a completely new requirement
- A new product is added to an organisation’s offer, that uses materials or components not sourced before
- There are changes in legislation which mean a public sector department has to offer a new service that requires skills and experience not used in other services that are already procured
- Technology changes and new equipment is needed
In what circumstance are procurement skills most needed?
For new procurement activities
Name 9 tasks involved in a new procurement activity
- Understanding the business requirement
- Writing an effective specification for what is needed
- Researching the supply market
- Researching key suppliers in that market
- Deciding on the key capabilities that suppliers must have
- Writing invitation to tender documentation
- Managing the tender process
- Negotiating
- Selecting the supplier
What are the three types of purchases?
- Straight rebuy
- Modified rebuy
- New purchase
Provide 3 examples of straight rebuy
- Stationary
- MRO
- Raw materials
Provide 3 examples of modified rebuy
- Services
- Components and semi-finished products
- ICT
Provide 3 examples of a new purchase
- Capital items
- Finished products
- Products from resale
Regulatory bodies
Public authorities or government agencies that have responsibility for overseeing and supervising a specified activity
Capacity
A measure of the rate at which the operations function can transform its inputs into a quantity of product or service outputs in a given timescale
Target costs
The expected costs of making a product or delivering a service
Whole-life costs (WLC)
An estimate used to help buyers determin the end-to-end cost of providing a service, manufacturing, or procuring a product. Also commonly referred to as total cost of ownership (TCO), or total life-cycle costs (LCC). The use of the terms vary dependent on industry and sector
Benchmarked prices
Comparing an element of one business, such as price, quality or service against another
Continuous improvement
An ongoing effort to improve products, processes and services
Provide an example of the mission of a private sector company
Supply a specific group of customers with products that meet their everyday needs or improve their lives in some way
Provide an example of the aim of a private sector company
To maximise profits and provide a financial return to it’s shareholders
Provide an example of the mission of a public sector company
Provide people with services that are not available from the private sector or are better provided by a non-profit organisation
What does the mission of an organisation do?
Determines its business requirements
What do business requirements effect?
What procurement needs to source and how it goes about it
What acronym can be used to identify business needs?
RAQSCI
Whats does RAQSCI stand for?
Regulatory
Assurance of supply
Quality
Service requirements
Cost
Innovation
What business need does regulatory cover?
Any legal requirements or requirements of regulatory bodies
What business need does assurance of supply cover?
The continuing supply of goods and services when required and is based on factors such as capacity, financial stability and risk
What business need does quality cover?
The consistency, repeatability and how fit for purpose the procured goods and services are
What business need does service requirements cover?
Factors associated with the way services are supplied, for example, flexibility. availability of support, such as helpdesks
What business need does cost cover?
Cost and price for example: target costs, whole-life costs, benchmarked prices and continuous improvement
What business need does innovation cover?
Looking for means of improving customer experience such as the use of emerging technology, customer of first choice and capability improvement
Why do procurement professionals need to involve a range of stakeholders within the organisation?
So they can take into account different stakeholders’ conflicting needs and to agree in advance on any compromises that must be met
Name 4 procurement activities that business requirements will be used to inform
- Defining evaluation criteria
- Testing the available options to ensure they satisfy the company’s overall needs
- Developing performance measures
- Re-evaluating your sourcing strategy if circumstances change
Criteria
Principles or standards used to judge or decide something
Performance measures
Standards, targets and metrics used to collect and analyse information on the performance of an individual or contract
Sourcing stratgey
A plan for creating an advantage by continually reviewing current needs against purchasing opportunities
Why is the order of the 6 themes in the RAQSCI model important
It ranks them in order of importance
Provide a RAQSCI example for the provision of care service in the adult social care market
Regulatory - must comply with safeguarding vulnerable groups act 2006
Assurance of supply - Must have the capacity to offer 98% of our placement needs on demand and must be able to demonstrate financial stability
Quality - Must have a minimum of a two-star CQC rating and the supplier must show evidence that it has processes in place that assure quality standards are achieved consistently
Service - Must have a help desk available to enquirers for core hours 9-5
Cost - unit prices will be at or below published average levels and processes are put in place to deliver continuous improvement that achieves agreed deflation levels year after year
Innovation - Processes in place to adopt and adapt new technology available to the sector to improve service standards
Name 4 things to consider when developing a business requirement
- Collect information relating to the organisations desired future state
- Categorise all potential stakeholders
- Indentify individuals who contribute to the acquisition, manufacture or use of the product/service
- On completion, the analysis should be summarised and shared with all the stakeholders
Requisition
An internal document raised by a user or a store to communicate to procurement the need to buy the product or service specified
Purchase Order (PO)
A commercial document issued by a buyer to a seller confirming the goods or services required together with the quantity and specification needed
Annual planning cycle
Planning involves a number of activities, such as analysis of opportunities, setting aims, exploring options, producing detailed plans and reviewing the plans against expectations. A cycle of activities as the result where each activity might need the previous activity revised before the final plan is accepted
Terms and conditions
The rules that must be adhered to during a contract (also called terms of service or terms of use)
Trigger events
A set of circumstances that start an activity
Breakthrough result
The achievement of a particularly important and significant result
It is possible to decide whether something is a straight rebuy if one or more of the following apply. List 4 of the ‘following’.
- A list of approved suppliers exist and terms and conditions have previously been agreed
- New suppliers are not considered
- The process for ordering is procurement approved and routine
- Buyers have relevant buying experience and require little to no new information
When is there value in revisiting the business need?
If the item is a modified rebuy
What’s the best way of revisiting a business need?
Creating a sourcing strategy
Name the 10 steps to creating a sourcing strategy
- Define the scope of spend for the strategy and the requirements of the user or budget holder
- Assess the current spend
- Assess the supply market
- Analyse the total cost
- Identify suitable suppliers
- Develop a strategy
- Decide the route to market
- Decide how to implement the new supply arrangements
- Decide how to track results and benefits
- Define the trigger events that will restart the sourcing process
Whats the most important part of preparing a sourcing strategy?
The scope of the business needs
Is the sourcing strategy a continuous cycle?
Yes
What does the scope of the sourcing strategy determine?
It determines what can and cannot be considered
What’s the starting point of the scope of a sourcing strategy?
To define the category of what the organisation is sourcing
Name 3 questions you should ask when defining the scope of the strategy
- Are there any geographical boundaries that need to be considered?
- What time period should the strategy cover?
- Are there any organisational boundaries that need to be considered?
Collaborative agreement
This is a long term agreement between a buying organisation and a selling organisation which sets out how each party proposes to share information, costs, risks and results by working together on a product or service
What should the output from the process of defining the scope be?
A simple statement of no more than one or two sentences
What 2 things do you need to consider to generate options that substantially increase the value of the modfied rebuy?
- The capability of the supplier that is being sourced
- The product or service specification
Capability
The ability of a supplier to meet an organisations specific business requirements
Name 8 examples of typical capabilities
- Specialist skills
- World-class processes
- Social value contribution
- Sustainability characteristics
- Qualifications from regulatory bodies
- Leading-edge software
- Specific capital equipment
- Unique or dominant access to rare resources
Name 4 things to remember when creating your sourcing strategy
- Formulate a plan for engaging with all the relevant stakeholders
- Be creative when defining the scope of the procurement
- Consider whether a broad range of related products and services can be included to increase your spend and therefore your leverage
- Present your scope to your stakeholders in a clear and concise statement of one or two sentences
Name 4 examples of risks to an organisation due to new purchase activities
- Marketing needs to agree that the attributes of the product or service are those that are needed to support the required levels of quality, services and cost of the end product sold to customers
- Engineering needs to ensure that the item meets all of the technical requirements
- Manufacturing needs to be assured that the item is capable of being used in existing manufacturing processes using existing equipment
- Finance needs to ensure that the cost of the item enables the price if the end product to be maintained
Name 5 ways new purchase situations are characterised by?
- The need is for a new product or service not used before
- There is no existing experience of buying this item
- A review has already been carried out to identify different ways of meeting the need other than by a new procurement
- A lot of information is needed before the purchase can be made
- There may be a requirement for follow-on straight rebuy orders once the initial purchase has been made
What does a business case capture? (5)
- Benefits of the proposed action
- Any risks involved
- How risks can be mitigated
- Timescales for completing the project
- Role and responsibilities involved
What should a business case explain?
Why something needs to be done and not just what needs to be done
What’s the purpose of a business case?
To seek approval and possibly finance for the recommended plan of action
Name 3 reasons a business case is prepared for
- A contract is coming to an end and the product or service needs to be procured again
- Cost reductions need to be made and this requires changes to the way the organisation operates
- An alternative product or service has been found that potentially delivers a number of benefits
Name 2 forms of a business case
- Procurement sourcing strategy
- Category management plan
What’s the first step in developing a business plan?
To be clear as to the opportunity the business case will exploit or the problem that the business case will solve
Buying off-contract
The purchase of an item without a contract when a contract for that item already exists
Name 2 types of problems
- Closed problems
- Open-ended problems
Closed problems
These appear when something happens that should not have happened
Open-ended problems
These are where something is stopping the achievement of an objective or blocking progress
What is problem solving about?
Finding ways to correct situations or unblock the blockages
Name 4 examples of a closed problem
- The price of a key raw material suddenly increases and makes a product less profitable
- The level of buying off-contract increases quickly and incurs unnecessary cost for the organisation
- An employee is under-performing and not achieving the expected results
- There is an unusually high level of purchase invoice errors
Name 4 examples of open-ended problems
- Agreement form senior management is required for an additional budget to hire people into the new organisation structure
- There is an emerging monopoly in a key market and competition needs to be stimulated
- A 10% cost reduction is needed across all purchases to meet new corporate objectives
- An individual wants to start a category management programme but the organisation will not cooperate
What do people make the mistake of doing when faced with a problem?
Trying to jump straight to a solution
Describe an 8 step effective process to solving a problem
- Problem
- Problem definition
- Data collection
- Analysis
- Insight
- Hypotheses
- Test
- Solution
Name an analysis to identify a problem
‘5 Whys’ analysis
What should problems and solutions be based on?
Evidence
Describe the 8 step model process for solving problems in procurement
- What is the current situation?
- What do we know?
- What are the underlying issues?
- What are the strategic options?
- What is the best option?
- How should we implement the plan?
- Have we achieved our objectives?
- What can we improve?
What type of systems are closed problems usually identified using?
Performance monitoring systems
Describe a performance monitoring system
Where a target is set and the actual results are measured. Any variance between the target and the actual results indicates that there is a problem
Cost-out approach
The elimination of a cost in the manufacture of a product or the delivery of a service by means of removing an item from the specification
Cost-down approach
The reduction of a cost in the manufacture of a product or the delivery of a service by means of changing an item in the specification
Name a simple approach for an open-ended question
Start by writing down a problem statement
What does an effective problem statement include?
The key features of the problem in such a way that it helps to point towards a solution
Name 4 ways in which data can be gathered
- Interviews
- Questionnaires
- Observations
- Documents and records
Name a method that can help you draw conclusions that help to develop the problem definition
Issues map - use sticky notes to write down each issue and connect issues that relate to each other with an arrow
Name a simple way to generate options
A checklist
What acronym can be used as a checklist to generate options?
SCAMPER
What does SCAMPER stand for?
Substitute
Combine
Adapt
Modify
Put to other uses
Eliminate
Reverse
What is SCAMPER used for?
Each word is used to frame a question for the problem to stimulate the generation of options for solving it
What checklist is used for selecting the best solution? (5)
- Define the ideal solution
- Eliminate those which do not meet any constraints that there may be
- Evaluate the remaining solutions against the ideal solution definition
- Assess the risks associated with the best solution
- Make the decision
What’s a good way of defining roles and responsibilities?
RACI
What does RACI stand for?
Responsible - the person who will perform the task in the plan
Accountable - the person who has overall control of the project and has the power to say yes or no
Consulted - The people who need feedback on progress and may make some input to the work
Informed - the people who need to know about any decisions made for the project
What may happen if too many people have the same role in a RACI matrix?
Roles have not been clearly defined
What may happen if too few people have the same role assigned in a RACI matrix?
The roles have not been assigned
Name the 6 step process to implementing the plan
- Create a team to implement the plan
- Create a project plan with activities, dependencies, outputs and dates
- Create a dashboard for tracking and demonstrating progress
- Communicate ongoing activity and results to stakeholders in the project
- Adapt the plan to changing circumstances
- When the project is completed document the results and share them with stakeholders
Name 5 ‘do’s’ for problem solving
- Make sure there are sufficient solution options to choose from
- Consider all of the options
- Gather enough data and information
- Have clear objectives for the problems that you are trying to solve
- Understand and properly apply techniques for evaluating data and solutions. Be methodical and apply the process consistently
Name 5 ‘don’ts’ for problem solving
- Rush it
- Approach the process in a random manner
- Accept external information at face value
- Accept others’ judgements uncritically
- Be impulsive. Taking short cuts will lead to failure
What does FOG stand for
Fact
Opinion
Guess
What does a simple business case look at?
The total costs and benefits to the organisation of a project. It needs to ensure activities are aligned with the strategic objectives and purpose of the organisation
Name 15 sections that a typical business case for a new purchase activity or modified rebuy would include
- Executive summary
- Long-term strategy considerations
- Business requirements
- Price and cost analysis
- Return on investment
- Market analysis
- Risk analysis
- Supplier analysis
- Technical developments
- Vulnerability analysis
- Sourcing objectives
- Implementation plan
- Long-term benefits
- Sustainability
- Competitive advantage
Cross-functional collaboration
A group of people with different skills and specialisms coming together to achieve a common purpose
Return on investment
A measure of profitability that indicates whether a gain or loss has been generated compared with the initial cost
Risk appetite
The level of risk that an individual or organisation is willing to accept
Name 5 elements of a business case that appeal to senior managers
- Return on investment
- Time to market
- Customer satisfaction
- Improving productivity
5.Managing risk
Profit
The amount by which revenues of a company exceed its total costs
Asset value
The value of everything an organisation owns
Product life-cycle
The processes or stages relating to the development of a product from scratch; bringing the product to the marketplace, sales in the market and the eventual decline and removal of the product from the marketplace. The model has four key stages: introduction, growth, maturity and decline
Productivity
The efficiency and effectiveness of effort required to produce or do something - measured in terms of the rate of output per unit of input
