chapter 1.2

Question 1

What are the five rights of procurement?

Answer 1

the right place
the right price
the right time
the right quality
the right quantity

these should always be considered when making a purchase and are an important part of the procurement profession. they are interlinked and can be used to add value in various aspects of the procurement role

Question 2

What is the right quantity?

Answer 2

this involves ensuring the most cost-effective amount of a product or service is procured.
when this does not occur the following can occur
-stock-outs
-production could stop
-dissatisfied stakeholders whose orders cannot be fulfilled
-the price that the company pays for a product may be too high

when ordering goods quantity needs to be taken into consideration to obtain the best price (economies of scale)

Question 3

economies of scale

Answer 3

this is a lower cost obtained for a product or service based on a high quantity ordered.
this is made possible because the supplying organization is able to run machinery for longer, send out one vehicle to deliver instead of several, receive one large sum of money instead of several.

Question 4

the right quality

Answer 4

this refers to if the product or service is fit for purpose more so than if the product or service is high in quality. a procurement professional should be able to define the standard of quality. This can be done by stating the quality standards and producing a product specification.

Question 5

iso 9000

Answer 5

a set of international quality management and quality assurance standards that help companies effectively document and maintain an efficient quality standard. it is not specific to any one industry. It is the only global standard that is recognized worldwide

Question 6

iso 9001:2015

Answer 6

this is the current quality management standard within the iso 9000 family

Question 7

product specification

Answer 7

this is another way for a procurement professional to ensure that the standard of quality that their organization demands is met.
producing a specification requires teamwork and crossfunctional working

there are two types of specification- performance and conformance

Question 8

sections of product specification

Answer 8

description- what the product is called and its part number

drawing- a diagram showing exact dimensions, material and weight

colour- details of any colour required
materials- what materials the product is to be made of

quantity- number of units in total

packaging- whether it should be wrapped individually or supplied loose, the number of products in a box and if the packaging is returnable.

quality- any quality standards required (iso)

Question 9

conformance specification

Answer 9

this details exactly what the product or service should consist of. the supplier will not necessarily know what the product will be used for. eg chemical formulae and recipes for food.
usually, a long document that takes time to prepare and is expensive.
is difficult to prepare.
does not allow suppliers to innovate and limits competition

Question 10

performance specification

Answer 10

Outlines what the product is to do or achieve, this covers output requirements, tolerances and any functions it may have to perform. They are shorter and less complexed than conformance specifications.

Question 11

the right time

Answer 11

procurement professionals need to ensure that orders and contracts state the time the buying org. requires them. The right time should always be determined before placing an order or agreeing to a contract.
the consequences of an organization not receiving goods at the right time are
-stock-outs
-Additional costs (buying substitutes, deliveries at the wrong time, a waiting time clause in a contract)
-relationships being negatively affected

the consequences of not receiving a service at the right time are.

• being uninsured
• the premises is not cleaned
• there are no catering services
• communications services are not available

Question 12

the right place

Answer 12

goods and services have to be delivered to the right place. failure to do this can result in the following-

• stock-outs
• dissatisfied customers who do not get their orders and take their business to other org’s in the future.
• additional cost incurred due to drivers having to be redirected

Question 13

the right price

Answer 13

the price of a product or service must be fair and reasonable. when considering the price it is important to consider the following

• the currency (savings based on the exchange rate, confirm which currency the quote is being sent in to avoid issues later on)
• tax ( gross or net price)
• incoterms

Question 14

incoterms

Answer 14

the shipping or delivery methods under which a supplier intends to supply goods to a buyer
exw- ex-works
dat- delivered at terminal
cpt- carriage paid
cip- carriage and insurance paid
fca- free carrier

Question 15

exw

Answer 15

the procurement department arranges collection and delivery of the goods from the supplier. This will result in an on cost to the buyer.

Question 16

fca

Answer 16

the supplier delivers the goods to a chosen destination, where a courier chosen by the buyer collects them and delivers them to the final delivery point.

Question 17

cpt

Answer 17

goods delivered with no official carriage bill to a destination agreed with the buyer. The carriage is absorbed in the product price. the buyer is responsible for insuring the goods throughout the journey.

Question 18

cip

Answer 18

goods delivered with no official carriage bill to a destination agreed with the buyer. The carriage and insurance is absorbed in the product price

Question 19

dat

Answer 19

goods are delivered to a seaport, airport or train station by the supplier. the buyer is then responsible for arranging the rest of the journey.

Question 20

tco

Answer 20

the total cost incurred by owning a product throughout the useful life, including acquisition, use, maintenance, and disposal
it is also called the total life cycle costs.
the elements of tco are 
-tca
-tooling
-maintenance
-disposal
-storage
-training
-insurance
-operation

Question 21

tca

Answer 21

the total cost incurred in acquiring a product from sourcing to receiving and installing.
tca includes factors such as the quality of the product (ensuring that they are fit for purpose)
-the cost of carriage and insurance
-lead time (amount of time it takes for the product to arrive including manufacture and shipping)
-price