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CIPS L4M2 - Defining Business Need > Chapter 2.1 > Flashcards

Chapter 2.1 Flashcards

1
Q

Tendering Process

A

A request from a buying organisation to invite suppliers to formally quote on a large value project

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2
Q

What is an industry formed to?

A

A service market

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3
Q

What are industries made up of?

A

Segments which are groups of organisations that share common characteristics, such as the type of customer served.

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4
Q

Can a specific organisation work in more than one segment?

A

Yes

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5
Q

How are industries normally classified?

A

In three main groups which are primary activities (essentially extractive industries, such as mining), secondary activities (manufacturing) and tertiary activities (services)

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6
Q

How are the three groups of industries further analysed?

A

Using a coding system

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7
Q

Name an example of a coding system

A

The four-digit SIC (standard industry classification) system which originated in the US and is now widely used around the world

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8
Q

What is the SIC code for agriculture, forestry and fishing?

A

0100-0999

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9
Q

What is the SIC code for mining?

A

1000-1499

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10
Q

What is the SIC code for construction?

A

1500-1799

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11
Q

What is the SIC code for ‘not used’

A

1800-1999

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12
Q

What is the SIC code for manufacturing?

A

2000-3999

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13
Q

What is the SIC code for Transportation, communications, electric, gas and sanitary services?

A

4000-4999

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14
Q

What is the SIC code for wholesale trade?

A

5000-5199

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15
Q

What is the SIC code for retail trade?

A

5200-5999

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16
Q

What is the SIC code for finance, insurance and real estate?

A

6000-6799

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17
Q

What is the SIC code for services?

A

7000-8999

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18
Q

What is the SIC code for public administration?

A

9100-9729

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19
Q

What is the SIC code for non-classifiable?

A

9900-9999

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20
Q

Who are the SIC codes be further sub-divided by?

A

SEC (Securities and Exchange commission)

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21
Q

Who suggested that there are three generic strategies for competing in an industry?

A

Michael Porter

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22
Q

Name Michael porters three generic strategies for competing in an industry

A
  1. Cost leadership
  2. Differentiation
  3. Focus on a narrow niche segment
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23
Q

Define cost leadership

A

A strategy used by businesses in order to gain a competitive advantage by having the lowest cost of operation within their particular industry

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24
Q

Define differentiation

A

When a product or brand stands out as being unique to customers when compared to its competitors

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25
Q

How would you describe a company that is not clear about any of the three strategies for competing in an industry?

A

‘Stuck in the middle’

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26
Q

What normally happens to ‘stuck in the middle’ companies?

A

They can’t compete on price or differentiation and so it ultimately fails

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27
Q

Define rivalry

A

Competition between companies, usually within the same industry

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28
Q

What can be valuable information when managing a market or supplier or negotiating with a supplier?

A

Having an understanding of a suppliers strategy and how it is being used in order to compete

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29
Q

Define segment

A

A group of products or services that provide specific but different value for their buyers

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30
Q

What does an understanding of segments help procurement and supply with?

A

Shaping and managing the supply markets

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31
Q

When is a different segment created?

A

If product or service differences alter just one of the areas of competition

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32
Q

What are the two other variables that can lead to a different segment?

A
  1. The distribution channel used to reach buyers
  2. The geographical location of those buyers
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33
Q

What do product based segments contain?

A

The individual products or services and any ancillary services such as maintenance or consumables

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34
Q

Define distribution channel

A

The network used to get a product or service from the manufacturer or creator to the end user or consumer. It can include wholesalers, agents and retailers and can include online channels

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35
Q

Can groups of products be sold together?

A

Yes

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36
Q

Can single products be bundled with ancillary services?

A

yes

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37
Q

Can the physical size of a product create a segment?

A

Yes

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38
Q

Name 6 factors that can create different segments

A
  1. Price levels
  2. Features
  3. Design
  4. Packaging
  5. Performance
  6. New versus replacement
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39
Q

Name 5 factors that determine how industrial markets are segmented on the basis of buyers

A
  1. Buyers strategy
  2. Buyer’s size
  3. Ownership
  4. Financial strength
  5. Order patterns
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40
Q

How can a buyers size be measured?

A

Either by individual order size or by annual purchase value

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41
Q

What can the ownership of an organisation have a major influence on?

A

The motivation of that company

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42
Q

Define premium price

A

When a product is sold for a higher price than its competitors

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43
Q

Define bargaining power

A

The relative ability of one party to exert influence over another in a negotiation or commercial dealing

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44
Q

Kraljic matrix

A

Strategic tool to help managers recognise the weaknesses of their organisation and form strategies to guard against disruption of suppliers

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45
Q

Define order patterns

A

The manner in which customers purchase goods and services

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46
Q

Define consumer markets

A

A marketplace involving individual consumers rather than businesses or companies

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47
Q

What can consumer markets be segmented on the basis of?

A

Their buyers

48
Q

Name 3 factors that help segments consumer markets on the basis of their buyers

A
  1. Lifestyle
  2. Language
  3. Purchase occassion
49
Q

What can the distribution channel used have implications for?

A

Costs

50
Q

Name 3 factors that determine distribution channel based segments

A
  1. Direct sale versus distributors
  2. Direct marketing versus retail
  3. Exclusive versus non-exclusive outlets
51
Q

Name 4 factors that determine geographical based segments

A
  1. localities, regions or countries
  2. Route details
  3. Climate zones
  4. Country groupings
52
Q

How can an organisation make a breakthrough in the outcomes it achieves and also reduce costs?

A

By identifying new segments

53
Q

Name 5 questions you can ask to help identify other factors that may create new segments

A
  1. Can other technologies or product designs deliver buyer needs in a better way?
  2. Can the product or service be enhanced to provide better value?
  3. Can the needs of some buyers be better met by reducing the number of functions the product or service delivers at the same time as reducing the price?
  4. Are there other bundles of products or services and acillaries?
  5. Are different channels available for reaching additional buyers or serving existing buyers more effectively?
54
Q

What would you use to identify new segments?

A

A segmentation matrix

55
Q

What does a segmentation matrix show?

A

A possible set of segments for a hypothetical industry

56
Q

Name one difficulty with constructing a segmentation matrix

A

There can be dozens of factors that determine the segments. The first step is to reduce this to a manageable number by applying a significance test

57
Q

What question does the significance test ask?

A

What impact will this factor have on competitive advantage?

58
Q

What is the third level of market analysis?

A

Understanding individual companies within each segment of the industry

59
Q

What do you first need to do when analysing a value chain?

A

Break down activities into those that have discrete technologies and costs. This means that broad functions such as manufacturing and marketing should be broken down into their main constituent activities

60
Q

What characteristics should the main constituent activities have?

A
  1. Different economics
  2. A high potential impact on product or service differentiation
  3. They should represent a significant and growing percentage of total costs
61
Q

Why is it important for procurement to understand the value chains of major suppliers?

A

So that they can use that knowledge to identify how suppliers use differentiation to best support their own value chains

62
Q

What does the value chain do?

A

Summarises the major activities of any organisation whether in manufacturing or services, the public or private sector

63
Q

Name 6 examples of specific markets

A
  1. Manufacturing sector
  2. Construction sector
  3. Retail sector
  4. Finance sector
  5. Agriculture sector
  6. Services sector
64
Q

Name 5 factors that need to be considered when analysing markets

A
  1. Objectives
  2. Drivers
  3. Governance
  4. Ownership
  5. Commodity or non-commodity
65
Q

Define manufacturing

A

The transformation of raw materials and components by mechanical, physical or chemical means into products that are sold to other companies or consumers

66
Q

Describe the manufacturing market sector

A

Very diverse and there are 20 more subdivisions in the Standard Industry Classification (SIC) system

67
Q

Name 5 common generic issues that affect most manufacturing markets

A
  1. Manufacturing requires investment in machinery and access to a suitably skilled workforce as well as raw materials and components
  2. The capital cost can be high and it can take time to build a network of suppliers that can provide the right quality of product at the right price
  3. The profitability of the manufacturing industry tends to be relatively low as past entry by organisations in low-cost countries has capped prices that can be charged for the end product. Barriers to entry therefore are quite high in most manufcturing segments
  4. Often there are no immediate substitutes available, but this can change as technology develops new ways of meeting buyer needs
  5. Switching costs can be high in the short-term if the product has been integrated into the organisations production process or requires costly retraining if a switch is made. The threat of substitutes in the short term is relatively low
68
Q

Describe the two groups that suppliers of manufacturing companies usually fall in to

A
  1. Group 1 - made up of a few very large organisations whose bargaining power is high. These tend to provide raw materials such as steel
  2. Group 2 - Group fragmented with many smaller suppliers, each of which has a little bargaining power. These tend to provide components
69
Q

Is the capital cost in manufacturing generally high?

A

Yes

70
Q

Name 4 challenges that shape the automotive industry (McKinsey)

A
  1. Complexity and cost pressure
  2. Diverging markets
  3. Digital Demands
  4. Shifting industry landscapes
71
Q

How much was the global construction sector estimated to be worth in 2020?

A

$6.4 trillion

72
Q

How much do they expect the global construction sector to be worth in 2030

A

$144 trillion

73
Q

Name the 2 largest segments of the global construction sector

A
  1. Construction of residential, industrial and commercial buildings
  2. Heavy construction pf infrastructure such as roads, bridges and railways
74
Q

Name 2 of the biggest barriers to entry for the global construction sector

A
  1. Experience
  2. Reputation
75
Q

Are barriers to entry considered to be very high in the global construction sector?

A

Yes - very high

76
Q

Are there substitutes for construction?

A

No, but there are for materials and components

77
Q

Describe switching costs in regards to materials in the global construction sector

A

Generally low

78
Q

Give an example of the construction market

A

The global market for infrastructure construction, such as transport, electricity or water systems

79
Q

How would you describe the construction industry’s productivity

A

It has remained relatively flat

80
Q

Name 4 reasons why the construction industry’s productivity has remained relatively flat

A
  1. Poorly conceived projects
  2. Length of time taken to approve projects
  3. Lack of innovation in how to deliver projects
  4. Not maximising the use of existing assets first
81
Q

Name 4 drivers of sustainable performance that organisations in the construction market need to address

A
  1. Poor levels of productivity therefore poor level of profit
  2. The need to improve project performance
  3. Shortage of skilled labour
  4. Sustainability
82
Q

How much of the worlds carbon emissions does the construction industry account for?

A

Between 25% and 40%

83
Q

How much did the retail industry sector account for globally in 2018?

A

$24 trillion

84
Q

How much is the retail industry sector estimated to account for globally by 2020?

A

$28 trillion

85
Q

Name the 8 SIC subdivisions the retail sector covers

A
  1. Building materials
  2. General merchandise
  3. Food stores
  4. Automobile sales and gasoline service stations
  5. Apparel and accessories
  6. Home furniture, furnishings and equipment stores
  7. Eating and drinking places
  8. Miscellaneous retail
86
Q

Describe the barriers to entry for the retail sector

A

usually high - investment in physical presence in cities and towns or web design etc

87
Q

Why is the threat of substitutes high for the retail sector?

A

There are often several alternatives open to the buyer

88
Q

Who are the buyers usually in the retail sector?

A

Predominantly individuals

89
Q

Describe the competition in the retail sector

A

Often intense

90
Q

How can the intensity of competition in the retail sector be mitigated in some instances?

A

By creating a brand that attracts loyalty from customers and even premium pricing

91
Q

Name 5 expected drivers of the fashion industry

A
  1. Continuing uncertainty in the industry in terms of demand
  2. Comapnies around the world becoming more connected through technology
  3. The emergence of disruptive technologies which are quickly adopted by companies in the industry
  4. Consumers being in control by sharing information, opinions and reviews through connectivity and social media
  5. The need to reduce the time from design to product shipment
92
Q

Name 7 objectives of the fashion industry

A
  1. Integrate physical and digital channels to market
  2. Improve the retail experience
  3. Build brands and brand loyalty
  4. Build IT capability to digitise the value chain
  5. Increase productivity
  6. Reduce product complexity
  7. Emulate start-up organisations by increasing collaboration and forming partnerships
93
Q

Describe the financial services sector

A

Extremely diverse in the types of services offered.

94
Q

What does the financial services sector consist of?

A

Primarily consists of businesses that engage in the creation, liquidation and change of ownership of financial assets, such as shares, bonds and derivatives

95
Q

What do the customers of the financial services sector range from?

A

Individuals to businesses, non-profit organisations and the public sector

96
Q

Name the 3 main segments in the financial services sector

A
  1. Financial services (excluding pensions funding and insurance)
  2. Insurance, re-insurance and pension funding
  3. Auxiliary activities
97
Q

What activities does the financial services (excluding pensions funding and insurance) segment include?

A

Activities such as banks, building societies, savings banks and credit unions

98
Q

What activities does the insurance, re-insurance and pension funding segment include?

A

Life insurance, travel insurance, health insurance, property insurance, transport insurance and liability insurance as well as employee benefits, pensions and retirement plans

99
Q

What activities does the auxiliary activities segment include?

A

Financial markets such as commodity and futures contracts and stock exchanges, brokerages, insurance agents and insurance loss adjustments

100
Q

Why can’t you do a proper analysis of the financial services sector

A

Because the segments are so diverse with differing buyers and rivalries

101
Q

How would you describe the bargaining power of the suppliers in the financial services sector?

A

Relatively low

102
Q

Name the 5 drivers of long term growth in the financial services sector

A
  1. A move from focusing on products and services to putting the customer at the centre of everything
  2. Modernisation of regulatory compliance
  3. The need to better manage technology to emphasise activities that differentiate the bank from competitors
  4. The need to mitigate cyber risk
  5. A changing workforce with more people wanting to be freelance or become contractors rather than permanent employees
103
Q

Name 4 objectives of the financial services sector

A
  1. To improve customer experience of digital banking
  2. To ehance data analytics capabilities to identofy customer needs
  3. To find ways to reduce operating costs
  4. To increase investment in innovation
104
Q

What is the global food and agribusiness market sector valued at?

A

$5 trillion

105
Q

What is demand of the global food and agribusiness sector expected to do by 2050?

A

Double

106
Q

The SIC classification has 5 main subdivisions for agriculture. Name them…

A
  1. Agricultural production - crops
  2. Agricultural production - livestock
  3. Agricultural services
  4. Forestry
  5. Fishing, hunting and trapping
107
Q

Why is the threat of new entrants low in the agriculture market segments?

A

It requires significant investment in land and machinery which requires confidence in quality. And margins are often low.

108
Q

Can there be substitutes for particular types of agriculture products?

A

Yes

109
Q

When may supplier strength be high in the agricultural sector?

A

Many of the products can be subject to shortages. In these circumstances supplies may be rationed which means supplier strength is often high

110
Q

How would you describe competition in a global agricultural market

A

Intense because many businesses compete for a share of the wallet of large retail chains

111
Q

Name the 2 drivers of change in the agricultural sector

A
  1. The level of income. This is a bigger driver than population growth as it increases the demand for animal protein. This is not as efficient to produce as plant-based diets in terms of energy use and energy conversion
  2. The limited availability of land and water needed for crop production
112
Q

What 4 areas can be considered when considering the service sector?

A
  1. Information and communication
  2. Professional, scientific and technical activities
  3. Administrative and support service activities
  4. Other service activities
113
Q

Why may make suppliers bargaining power high in the service sector?

A

Staff retention and recruitment is a key activity and if there is a shortage of the skills needed then suppliers can command high salaries, making their bargaining power high

114
Q

Why is competition in the service sector intense?

A

There are many suppliers of a particular service and switching costs are low.

115
Q

Name 4 objectives of the service sector specifically professional services

A
  1. To build trust with existing and potential clients
  2. To empower service delivery staff to deliver a quality and time bound service
  3. To establish uniform processes so that a common way of working is established even though each set of client needs are different
  4. To achieve the highest levels of customer satisfaction
116
Q

What was Kraljic’s original definition of importance based on?

A

The profit impact of a category. The category could be low in spend but if it is used in the manufacture of 80% of an organisations sales then a price rise of that category or a failure in delivery can have a significant impact on the organisations overall sales and profit

117
Q

Name 6 critical factors that determine the importance of a category

A
  1. Value of spend
  2. Importance of the delivery of the organisations service or product
  3. Universality
  4. Impact of the category on the quality of the final product
  5. Volume purchased
  6. Impact on the organisations plans for growth

CIPS L4M2 - Defining Business Need (12 decks)

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