CIPS L4M2 Chapter 1 (1.1) Flashcards
Analyse how business needs influence procurement decisions
What is the 3 types of business needs
or
What is the 3 different types of purchases can be made?
or
Summarises the 3 types off purchases with a example
Straight re-buy (Approved supplier list) • Utilities (gas,water,electricity) • MRO (maintenance,repair and operating items) • Raw Material (steel,coal,chemicals)
Modified re-buy (Buyer must have procurement solving skills) • Consultancy Services • Components and semi-finished products • ICT (software for a number of users)
New purchases (Legislation and Technology changes) • Capital Items • Finished products • Products from re-sale Chapter 1: Pages 2,3,4
What is the definition of Straight re-buy and what is the procurement task?
The purchase of something that an organisation has bought before
• Business need has already been defined
• Specifications are already in place
• Generally, suppliers will already be contracted to agreed terms and conditions.
• Low value and low risk
• Call off or framework agreements
• Purchasing cards (P-Cards)
The procurement task is to:
• raise a requisition and place a purchase order
Chapter 1: Pages 2,3,4
What is the definition of Modified re-buy and what is the procurement task?
Similar to a straight re-buy but there are some changes to the specification the business need will need to be revisited, particularly if it is part of a cost-reduction
programme
The procurement task is to:
• Create a sourcing strategy
• Decide on the route of the market
• Decide how to implement the new supply arrangements
• Determine how to track results and benefits
• Define the trigger events that will restart the sourcing process
Chapter 1: Pages 2,3,4
What is the definition of New Purchases and what is the procurement task?
Made when the organisation identifies a completely new requirement not purchased before.
The procurement task is to:
• Understand the business requirement
• Write an effective specification for what is needed
• Research the supply market and key suppliers
• Decide on the key capabilities that the suppliers must have
• Write invitation to tender documents
• Manage the tender process
• Negotiate
• Select the supplier
The new purchase will usually involve many people from different departments in order to mitigate risks to the organisation
Chapter 1: Pages 2,3,4
Analyse how business needs influence procurement decisions
• Sourcing requirements from external suppliers commits an organisation to a cost
and a liability
• By sourcing from external suppliers, it is assumed that the purchase will help to create value over and above the cost
• Prior to making very large purchases, it is best practice to evaluate the costs and benefits of the proposed procurement and obtain agreement of senior management through a business case.
Note: A business case is never written by a procurement team in isolation.
Chapter 1: Pages 5,6
Which model can be use to identify business needs?
or
Which model takes six (6) themes and ranks them in a specific order?
RAQSCI (pronounced rack-ski) RAQSCI model can be used to identify business needs: o Regulatory (regulatory bodies) o Availability o Quality o Service requirements o Cost o Innovation Chapter 1: Pages 5,6
Why is the order of the six (6) themes important
The order in the RAQSCI model is crucial as it focuses attention on potential improvement.
Chapter 1: Pages 5,6
What is the implications for business needs on the types of purchases? (explain them separately)
Straight re-buy – if the following apply:
• A list of approved suppliers exists, and terms and conditions have already 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
Chapter 1: Pages 7,8,9
What is the implications for business needs on the types of purchases? (explain them separately)
Modified re-buy – creation of a sourcing strategy through:
• Define the scope of spend and the requirement
1.Identify:
Any geographical boundaries
Time period of the strategy
Any organisational boundaries
2.Output of the process should be a simple statement
of no more than 2 sentences
• Assess the current spend
• Assess the supply market
• Analyse the total cost
• Identify suitable suppliers
1.Typical capabilities:
Specialist skills
World class processes
Qualifications from regulatory bodies (i.e. ISO)
Leading-edge software
Specialist capital equipment
Unique or dormant access to rare resources
(i.e.human skills)
• Develop a strategy
• Decide the route to market (tendering exercise)
• Decide how to implement new supply arrangements
• Decide how to track results and benefits
• Define trigger events
Chapter 1: Pages 7,8,9
What is the implications for business needs on the types of purchases? (explain them separately)
New purchase – will involve many people from different departments and involves risks, i.e.
• Marketing
• Engineering
• Manufacturing
• Finance
• New purchase characteristics include:
1. The need is for a new product or service
2. No existing experience of buying this item
3. A lot of information is required before purchase
4. A review has already been carried out to identify different ways of meeting the need
5. May be requirement for subsequent follow-on straight re-buy
Chapter 1: Pages 7,8,9
Identifying business requirements is critical to a successful sourcing outcome to ensure
• Development of appropriate evaluation criteria
• Appropriate sourcing options are tested and selected
• Relevant performance measures are developed
• Updating of the sourcing strategy
Chapter 1: Pages 8,9
What considerations needs to be taken when defining business requirements?
• Gather as much data on future direction of organisation as possible
• Identify and meet with all stakeholders
• Consult with as many people as possible who have a role in the acquisition
• Share analysis summary with all stakeholders
Chapter 1: Pages 8,9
What is the capability of a supplier important to a buyer?
List 3 examples
Increase the value of modified re-buy.
Results create an option for cost reduction plans.
Examples,
• Specialist skills
• Qualification from regulation bodies (e.g.ISO)
• Leading edge -software
Chapter 1: Page 9
What is a business case?
A justification for undertaking an action. Its purpose is to seek approval and possibly finance for the recommended plan of action.
Chapter 1: Page 10
When will a business case be prepared within the Procurement function ?
• A contract is coming to an end and the product or service needs to be procured again.
• Cost reductions need to be made
• An alternate product or service has been found that delivers benefits
Chapter 1: Page 10
Business case includes?
• Project analysis
• Choosing the best amongst projects
Chapter 1: Pages 10,11
Problems can be divided in to two (2) groups.
• Closed problems
Something happens that should not have happened
Finding ways to correct the situations
• Open-ended problems
Something is stopping the achievement or blocking the progress
Unblock the blockages
Chapter 1: Page 11;12
Describe the eight step (8) process for problem solving in procurement?
Solving the problem – 8 steps:
o Step 1 - what is going on?
o Step 2 – what do we know?
• Interviews
• Questionnaires
• Observations
• Documents and records
o Step 3 – what are the underlying issues?
• Issues map
o Step 4 – what could we do?
• SCAMPER checklist
o Step 5 – what is the best thing to do?
o Step 6 – how do we go about it (milestones)?
• RACI matrix
o Step 7 – have we achieved our objectives?
6 step process:
• Create a team
• Create a project plan
• Create a dashboard
• Communicate ongoing activity and results
• Adapt the plan to changing circumstances
• Document results when project is completed
o Step 8 – can we improve on what we have?
• Do’s and don’ts of problem solving
Chapter 1: Pages 13 to 18
What is the sections in a business case?
or
If you have to prepare a business case what information will it contain?
Prepare the business case o Typically contains: • Executive summary • Long-term strategy considerations • Business requirements • Price and cost analysis • Market analysis • Supply analysis • Technical developments • Vulnerability analysis • Sourcing objectives • Implementation plan • Competitive advantage Chapter 1: Pages 19,20
What should the plan of action clearly identify in a business case?
The opportunity it seeks to exploit or the problem the business case will solve.
• The benefits of the proposed action
• Any risks involved and how they can be mitigated
• Timescales for completing the project
• The roles and responsibilities involved
(i.e. who will do what)
• Why something needs to be done and not just what needs to be done.
Chapter 1: Pages 19,20
What will be the reason for developing business cases in Procurement?
• When a contract is coming to an end and the product or service needs to be procured again.
• When cost reductions need to be made which require changes to the way the organisation operates.
Chapter 1: Pages 19,20
What elements of a business plan that will appeal to senior management?
Return on investment • Time to market • Customer satisfaction • Improving productivity • Managing risk Chapter 1: Page 20,21
