Chapter 1.1 - Identify the sourcing (pre-contract stages 1-8 in the CIPS Procurement Cycle) process in relation to procurement Flashcards
Define sourcing
The ‘location, acquisition and management of all the vital inputs required for an organisation to operate. This includes raw materials, component parts, products, labour in all its forms, location and services’
Define tactical / operational sourcing
Low-level sourcing for low risk or routine items
Define strategic sourcing
High-level sourcing for core products or services
Name 4 attributes to tactical/operational sourcing
- Low-level decision-marking
- High-profit, low-risk items
- Short-term projects
- Transactional relationships
Name 4 attributes to strategic sourcing
- Top-level decision making
- High-profit, high-risk items
- Long-term projects
- Collaborative relationships
Name 6 attributes to value for money
- Price
- Delivery
- Quality
- Ethics
- Sustainability
- Availability
Define lead time
The amount of time from placing the order to the goods/services being delivered
Define fit for purpose
The products or service is capable of doing what it was designed to do
Define specification
A detailed description of the products or service required
Define ethical codes of practise
A document outlining an organisations accepted behaviours and principles of working
Define sustainability
Sustainability holistically considers the governance of an organisations environmental, social and economic viability to ensure organisations exist for the long term, and the needs of the present are met without compromising the needs of future generations
Define new buy
A brand new requirement - the first time the product or service has been sourced
Name the 11 stages of Novack & Simco’s sourcing process
- Identify needs
- Define user requirements
- Decide whether to make or buy
- Identify purchase type
- Carry out market analysis
- Identify potential suppliers
- Pre-screen suppliers and create a shortlist
- Evaluate shortlisted suppliers
- Supplier selection
- Final product
- Evaluate supplier performance
Define modified rebuy
A product/service that has been sourced before but requires a slight change prior to being rebought
Define in-house
An activity conducted within an organisation by its own workforce
Define straight rebuy
Straightforward repurchase of an item bought previously, rather than considering an alternative
Name the 13 steps of the CIPS procurement cycle
- Define business need & develop specification
- Market analysis & make or buy decision
- Develop the strategy and plan
- Pre-procurement market testing
- Develop documentation & detailed specification
- Supplier selection to participate in tender
- Issue tender documents
- Bid and tender evaluation and validation
- Contract award and implementation
- Warehouse, logistics and repeat
- Contract performance and improvement
- Supplier relationship management
- Asset management
Define outsourcing
Contracting an external supplier to manage and run a function that was previously handled in-house
Name 6 reasons why outsourcing may be a preferred option for a procurement organisation
- Financial
- Technological
- Resource
- Skillset
- Improved focus
- Reduce risk
Define core activities
Activities that are key to an organisations success
Define assets
Items of value owned by an organisation, which can be used to meet debts
Define economies of scale
Cost savings made as a result of increased levels of production, alternatively the financial benefit gained from purchasing more units of an item resulting in lower unit costs
Define logistics
The movement of something from one place to another
What is the make or buy decision
Whether to manufacture a product or provide a service in house, or to source it from an external supplier
Name 4 factors to consider during a make or buy debate
- Product or service - if it is core to the organisation, the decisions should be to keep control in-house
- The organisations current position
- The current market situation
- The amount of competition
What model can help you to understand the levels of competition and may help inform the make or buy decision?
Porters 5 forces
Name porters 5 forces?
- Rivalry among existing competitors
- Threat of new entrants
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitutes
Is porters 5 forces micro or macro?
Micro
Name 9 reasons why you may make instead of buy a product
- Strategy of the organisation is to be self-sufficient
- Enhanced control over processes
- Improved quality control
- Workforce remains stable
- Continuity of supply
- No suitable ‘buy’ suppliers
- Economies of scale available
- Reduced risk
- Easier to amend volumes/specification
Name 9 reasons why you may buy instead of make a product
- Specialised knowledge available
- Technological advancements available
- Small volumes are not cost effective for ‘make’
- Cheaper to buy in than manufacture/deliver
- ‘Make’ organisation does not have the machinery required
- Economies of scale available
- No capacity in-house
- Less inventory
- Reduced overheads
Define stakeholder
An individual or organisation with either an interest or an influence in (however slight) or who will be affected in any way by, the decisions and/or actions of a project, product, service or venture
What model can remind you of external factors that can affect the market?
STEEPLE
What does STEEPLE stand for?
Social
Technological
Economic
Environmental
Political
Legislative
Ethical
Demographics
What kind of model is STEEPLE?
Macro
Who should be consulted before any make or buy decision?
Stakeholders
Intracompany trading
Business conducted within a company, i.e. betweem two departments or locations
Centralised procurement
A structure where procurement for the whole organisation is carried out by a centralised function often from one centralised location
Decentralised procurement
A purchasing structure whereby individual locations are responsible for their buying activity
CLAN network
Centre Led Action Network where policy is determined by the centre but applied in the regions
SCAN network
Strategically Controlled Action network where the centre sets strategy and has some control in local markets
Distributed network
A structure where there is no defined centre and organisations have more of a virtual organisation
Raw materials
The base material from which a product is made, e.g. steel
Components
A part that makes up a product
Mark-up
The amount of profit expressed as a percentage of cost
Profit margin
The amount of profit made on a sale
Inter-trading
Trading between companies that are owned by different entities
What is transfer pricing?
Transfer prices are the amounts of money payable between divisions of the same organisation that have conducted business with each other
Why is transfer pricing audited closely?
To ensure that there is no dishonest activity occuring within an organisation, such as tax evasion
What is the objective of transfer pricing arrangements?
To reduce the burden of taxes payable on profits that are generated
What is the aim of transfer pricing arrangements?
For organisations to push the profits that they make into the global areas where tax rates are most favourable to them
What is the benefit of transfer pricing?
They have encouraged and promoted global trading within organisations, which has contributed towards economic growth in many areas
What does OECD stand for?
Organisation for Economic Cooperation and Development
What does the OECD do?
They regulate international tax laws
Name 5 advantages of transfer pricing
- Global tax bills can be reduced
- Simplifies internal accounting procedures
- Entire organisation can have fixed pricing on products/services
- Divisions can be easily evaluated based on spend
- No physical money needs to be transferred between divisions
Name 5 disadvantages of transfer pricing
- Some countries economies can be negatively effected
- Careful and strict monitoring is required to avoid tax evasion
- Sourcing locally may be more cost effective
- Negative effect on local economy
- Inter-organisational competition
Name 5 costs associated with sourcing
- Procurement professionals salary
- Resources, such as computers and telephones
- Training
- Development of policies and procedures
- Time
Kraljic Matrix
Strategic tool to help managers recognise the weaknesses of their organisation and form strategies to guard against disruption of suppliers
Routine/non-critical
Goods or services which have a low supply risk for the buyer and a low level of buyer spend
Leverage
To use the market to one’s best advantage
What is the Kraljic matrix used for?
To identify where a product or service sits in relation to the impact it has on the organisations profit and the level of supply risk it poses to the organisation
Name the 4 categories of the kralijc matrix
- Routine or non-critical
- Leverage
- Strategic
- Bottleneck
Describe routine/non-critical along with the procurement style and relationship
Low profit impact, low supply risk
Tactical
Arms-length
Describe leverage along with the procurement style and relationship
High profit impact, low supply risk
Tactical
Transactional
Describe strategic along with the procurement style and relationship
High profit impact, high supply risk
strategic
collaborative
Describe bottleneck along with the procurement style and relationship
Low profit impact, high supply risk
tactical
moderate
Name 4 costs of outsourcing
- procurement involvement to establish whether outsourcing is a practical option
- Procurement involvement in evaluating, selecting and awarding the contract to suppliers
- Management of outsourced contract i.e. performance levels and quality
- Outsourced contract managers to oversee the performance and remove the responsibility from procurement
Name 4 key benefits of outsourcing
- Increased expertise
- Core activity focus
- Potential reduction in risk
- Lower operating costs
Low cost countries
Countries that have a slow-growing economy and where rates of pay are significantly lower than in countries with more affluent economies
Name 4 benefits linked to market development through the growth of outsourcing
- Cost saving to the developed country
- Ability to further grow organisations due to non-core functions being outsourced
- Increased employment in developing countries and enhanced connectivity
- Ethical and sustainable behaviour promoted in developing countries
Connectivity
Global connectivity as a result of the development of international telecommunication networks
Is outsourcing core functions recommended?
No
Name the 4 sections of the outsourcing decision matrix?
- Strategic alliance
- Retain in-house
- Eliminate function or task
- Outsource
Outsourcing
Taking a non-core operation/process/function that the procurement organisation has previously undertaken itself and using a supplier under contract to deliver this instead
Insource
To bring a function of activity back in-house after previously being outsourced
Name the 4 outcomes when using the outsourcing decision matrix
- Eliminate
- Form a strategic alliance
- Retain
- Outsource
Offshored
The relocation of business or processes, for example, a customer service call centre or the manufacturing of a product, to a country where the costs of production are lower. usually this country will be located overseas
Reshored
To bring a function of activity back within the organisations national boundaries while still leaving the supply with a third party
Onshored
Moving the supply of goods or services back from overseas and close to the organisations home market without any import risks
Name 7 functions that are frequently outsourced
- IT support
- Catering
- Cleaning
- Marketing
- Social media
- Human resources
- Accountancy & payroll
When can insourcing only occur?
When an activity or function has previously been outsourced
Non-disclosure agreement (NDA)
Sometimes known as a confidentiality agreement (CA), this signed document is a legal agreement that information received will not be shared and remains the property of the originator
Intellectual Property
An intangible asset, such as a process created through human intellect; such assets may be protected by trademarks, copyright or patents
Prototype
A sample or model if an idea or concept
Patent
A way of protecting intellectual property, excluding other parties from using, marketing or making products that relate to it
Name 10 potential risks of outsourcing
- Loss of control
- Supplier resilience
- Confidentiality
- Quality
- Intellectual property
- Reputation
- Loss of technology, innovation & expertise
- Inflexibility
- Cultural, language and time zone differences
- Single source
TUPE
TUPE stands for Transfer of Undertakings (Protection of Employment). TUPE regulations protect the rights of the employees where work they were employed to undertake is transferred to a new business
Name the 2 main advantages of the TUPE regulations
- Continuity of supply for the buying organisation
- Continuity of employment for the workers
International Labour Organisation (ILO)
A UN agency specialising in international labour activities
Fairtrade foundation
An international charity which attempts to get a fair deal for farmers and workers in developing countries
