Chapter 2.3 Flashcards
What is very important when it comes to negotiating?
An understanding of supplier costs and the prices they charge
How are costs usually split?
Direct and indirect costs
Define direct costs
Those that are incurred in delivering a service or in making a product
Define indirect costs
Costs incurred in activities that support the production or service delivery
Can direct and indirect costs be both fixed and variable?
Yes
Define fixed costs
Costs that do not change with the level of output
Define variable costs
Costs that are directly related to the volume of output
Name 6 information sources that can be used in a market analysis
- Company annual reports
- Market data
- Technical data
- Requests for information (RFI)
- Plant vistis
- Discount lists
Define company annual reports
Reports released once a year as a way of communicating with shareholders about the performance of a company
Define line of best fit
The line that goes through approximately the middle of the data points with an equal number of data points above and below it
What do company annual reports usually contain?
Statements from the directors and chief executive about the main issues facing the organisation, how the organisation has faced those issues in the current year and its plans for the future. They also contain financial statements
What can a company’s annual report be used for?
Deducing some potential information for further analysis and comparison
Name 3 examples of companies that specialise in collecting and analysing information on a range of markets and selling the subsequent reports
- Mintel
- Gartner
- Forrester
Name 2 things market reports should contain
- Primary research
- Financial analysis
Name 8 pieces of information that market reports should illiustrate
- Number of companies in the market
- Analysis of those companies
- Market share analysis
- Market segmentation
- Trends in the market
- Innovation
- Customer insights
- Benchmarks
Who would technical data be provided by?
An organisations technical staff
What can accounting systems do?
Collect cost data which can be analysed into direct and indirect costs. The indirect costs are then apportioned to the products or services on an agreed basis
When would you use cost synthesis/should-cost analysis?
When you have a bought-in product because there is no access to the supplier’s accounting systems so you cannot determine their direct and indirect costs
What is a should-cost analysis
Where procurement staff work with their colleagues in operations who understand how the supplier’s product is made or service is delivered
Define request for information (RFI)
A standard process often used to collect information when an organisation is not yet sure of the details of the product or service that it wishes to produce
How can you adapt a request for information?
To ask potential suppliers for information on their direct and indirect costs. if they are reluctant to divulge that information the organisation could ask for the ratio between the two
Name 6 aspects that plant visits can give an organisation insight into
- How well the company is doing
- How old the equipment is
- The work practises
- How efficient the suppliers own buying is
- Are the buildings modern and pleasant to work in or run down
- What is the operating culture and morale like in the business
When may a company be willing to give discounts
- Once their break-even point is reached in order to win market share
What may the extent to which a company is willing to give discounts and the size of the discount for different additional order volumes provide insight in to?
Its fixed and variable costs as well as its direct and indirect costs
Whats one of the most important documents in any company?
The budget
What does the budget set out?
The plan for next year as to how much the company is expecting to sell and how much profit it is planning to make
What does a budget do in the public sector?
Sets out how the organisations funding is to be used
Define bill of materials
A comprehensive list of components, items and materials and parts to create a product, essentially a recipe for the production of an item
What can direct and indirect costs be used to assess?
The scope for price or cost variability when negotiating with suppliers
What is one of the best ways to negotiate lower prices?
Having a thorough understanding of the cost build up of the item that the organisation buys so that ways to reduce the cost without reducing quality can be identified
Define evidence-based negotiation
Having a thorough understanding of the cost build up of the item that the organisation buys so that ways to reduce the cost without reducing quality can be identified
Name 6 questions you should ask a supplier during negotiation
- Can any of the materials be swapped to alternatives that cost less?
- Would a change in specification allow different machines to be used that have a higher utilisation as this would give a lower unit cost?
- Can its own manufacturing engineers offer alternatives with or without a change to the specification of the product
- Can the utilisation of machinery be improved with better production planning?
- Are staff properly trained?
- What are the indirect costs for this product
What is an important document in controlling an organisations costs
A purchasing budget for bought-in products and services
What is an important and essential input to preparing a budget?
An understanding of the direct and indirect costs of the supplied product or service
Name an acronym used for collecting and analysing the data and information needed in any field
OWN-IT
What does OWN-IT stand for
Outline
Wide search
Narrow search
Increase your stockpile of information
Transform your stockpile into new knowledge
Name the 4 steps to creating an outline
- Be specific
- Define what is already known
- Create the outline
- Define any gaps
Why is creating the outline important?
It allows the researcher to share the topics for research with others so that they can confirm the correct areas are being addressed.
It also creates a checklist so that the researcher can test the data that has been collected for all areas and that each area is covered sufficiently
How is data different to information?
Data is raw material that has to be processed to create a product that is useful to the user. The product that is useful to the user is information
What does the wide search do for the researcher?
Gives them a general feel for what information is available to fill the gaps identified in the previous step
What is a useful tool for a wide search?
The internet
Name 4 ways that you can refine a google search
- Intitle operator search - returns searches containing a specific key word
- Inurl operator search - search is limited to pages that contain the phrase specified in the page URL
- Define operator search - returns pages with definitions of the term that has been entered
- Filetype operator search - returns pages that end in the filename suffix used
Why are powerpoints more powerful than lists of ideas?
By mapping out thoughts and memories and facts, the brain uses associations, connections and triggers to stimulate further ideas
Name a 5 step process to skim reading
- Read the introduction and conclusion
- Quickly skim through the book noting any diagrams, pictures, graphs or anything else of a visual nature
- During skim reading note any main headings
- Those steps will have given a feel for which parts of the book contain the most relevance, so go back and read those parts more carefully
- Whilst doing steps 1-4 make a mindmap of what you read
When may you skim read
When narrowing the search
Name 2 places you can skim read books
In the library or online
What is the objective when narrowing the search?
To create a stockpile of relevant information from the material that has been identified in the broad and narrow searches
What is the best way to get information from Subject Matter Experts?
To interview them - either in person or on the phone
Name one way of condensing information
Theme it
What does a procurement price cost analysis help to do?
Answer key questions that ultimately determine the cost of what an organisation buys
When would you issue a word of caution on a procurement price cost analysis
If it was being done on a new product or service
What may you have to do as well as a price cost analysis?
Benchmark the resulting price
