CIPS L4M2 Chapter 1 (1.1)

Question 1

What are the 3 types of business needs or What are the 3 different types of purchases that can be made? or Summarises the 3 types off purchases with a example

Answer 1

• 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

Question 2

What is the definition of Straight re-buy and what is the procurement task?

Answer 2

• 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

Question 3

What is the definition of Modified re-buy and what is the procurement task?

Answer 3

• 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

Question 4

What is the definition of New Purchases and what is the procurement task?

Answer 4

• 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

Question 5

What are the implications for business needs on the types of purchases? (explain them separately)

Answer 5

Straight re-buy

• 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

Question 6

What are the implications for business needs on the types of purchases? (explain them separately)

Answer 6

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

Question 7

What are the implications for business needs on the types of purchases? (explain them separately)

Answer 7

• Modified re-buy – creation of a sourcing strategy through:

Defining 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

Question 8

Analyse how business needs influence procurement decisions

Answer 8

• 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

Question 9

Identifying business requirements is critical to a successful sourcing outcome to ensure

Answer 9

• 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

Question 10

What are the considerations to be taken when defining business requirements?

Answer 10

• Gather as much data on future direction of the 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

Question 11

Which model can be use to identify business needs? or Which model takes six (6) themes and ranks them in a specific order?

Answer 11

RAQSCI (pronounced rack-ski) model can be used to identify business needs:

• Regulatory (regulatory bodies)
• Availability
• Quality
• Service requirements
• Cost
• Innovation Chapter 1: Pages 5,6

Question 12

Why is the order of the six (6) themes important

Answer 12

• It focuses attention on potential improvement. Chapter 1: Pages 5,6

Question 13

Why is the capability of a supplier important to a buyer? List 3 examples

Answer 13

• Increase the value of modified re-buy.
• Create an option for cost reduction plans.

Examples, • Specialist skills • Qualification from regulation bodies (e.g.ISO) • Leading edge -software Chapter 1: Page 9

Question 14

What is a sourcing strategy?

Answer 14

• A plan for creating an advantage by continually reviewing current needs against purchasing opportunities

Question 15

What is the meaning of Problem Solving?

Answer 15

The process of finding ways to correct situations (closed problems or unblock the blockages (open ended problems).

Question 16

What are the two groups which Problems can be divided in to?

Answer 16

• Closed problems - Something happens that should not have happened Find ways to correct the situations

Examples of closed problems:-

• an employee who is under-performing
• high level of invoice errors
• increase in the price of a key material
• increase in the level of buying off-contract (buying off-contract is the purchase of an item without a contract when a contract for the item aleady exists)
• Open-ended problems - Something is stopping the achievement or blocking the progress Unblock the blockages

Examples of open-ended problems:-

• Agreement from Senior Management to hire additional staff
• Emerging monopoly in a key market
• 10% cost reduction needed across all purchases
• New category managment programme which the orgainisation will not co-operate

Chapter 1: Page 11;12

Question 17

What are the steps for moving from the problem to the solution?

Answer 17

• Problem > Problem definition > Data collection > Analysis > Insight > Hypotheses > Test > Solution
• 5 Whys Strategies

Helps to describe a problem. Why this is happening?

Question 18

What is a business case?

Answer 18

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

Question 19

Describe the eight (8) step process for problem solving in procurement?

Answer 19

• Step 1 - what is going on?

Kepner-Tregoe Method - Relies on 3 key activities:-Describe problem in terms of identity, location, timing and magnitude, Compare problematic conditions with similar situations that are normal, Identify changes suggesting possible causes - Kepner-Tregoe approach: What is the problem, What is not the problem, What is distinctive about it?, Where is the problem, Where isn’t the problem

• Step 2 – what do we know? - Interviews, Questionnaires, Observations, Documents and records
• Step 3 – what are the underlying issues? - Issues map
• Step 4 – what could we do? - SCAMPER (Substitute, Combine, Adapt, Modify, Put to other issues, Eliminate, Reverse) checklist
• Step 5 – what is the best thing to do? - Select solution step: checklist: Define the ideal solution, Eliminate those which do not meet any constrains that there may be, Evaluate the remaining solutions against the ideal solution definition, Asses the risk associated with the best solution.
• Step 6 – how do we go about it (milestones)? - RACI (Responsible, Accountable, Consulted, Informed) matrix
• 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
• Step 8 – can we improve on what we have? - Do’s and don’ts of problem solving

Chapter 1: Pages 13 to 18

Question 20

When will a business case be prepared within the Procurement function ?

Answer 20

• 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

Question 21

A Business case will include?

Answer 21

• Project analysis
• Choosing the best amongst projects

Chapter 1: Pages 10,11

Question 22

What are the sections in a business case? or If you have to prepare a business case for the procurement of a new purchase or modify rebuy what information will it contain?

Answer 22

• Executive summary - a clear, persuasive and comprehensive summary of the contents of the business case.
• Long-term strategy considerations - an analysis of how this business case fits in with broader purchasing and business objectives.
• Business requirements - a clear statement of the business need and evidence that cross-functional collaboration has resulted in an arrangement on the requirements
• Price and cost analysis - evidence that shows costs have been analysed and benchmarked to show that the target price is reasonable.
• Market analysis - a clear and perceptive review of the current structure, issues and any likely developments within the market for this item.
• Supply analysis - current and potential supplier performance and capability.
• Technical developments - analysis of likely trends in technology and innovations that might affect supply.
• Vulnerability analysis - identification of areas that might make the organisation vulnerable together with analysis of the risks and actions to minimise them.
• Sourcing objectives - for both cost and value, detailed in a comprehensive and balanced way
• Implementation plan - roles and responsibilities, tasks and milestones fully detailed.
• Competitive advantage - summary of how this business case will create and advantage for the organisation.

Chapter 1: Pages 19,20

Question 23

What should the plan of action clearly identify in a business case?

Answer 23

• 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

Question 24

What elements of a business plan will appeal to senior management?

or

Framing a business plan for senior management should include

Answer 24

• Return on investment. The relationship between profit and asset value is the return on investment
• Time to market. Product life cycles. Early supplier involvement in product design and development.
• Customer satisfaction. Demonstrating how suppliers who have the capability to manage customer relationships on behalf of the organisation will get senior management interested
• Improving productivity. Productivity means increasing output for the same input, or getting the same output as before but with less input. How to get people to do thier jobs better
• Managing risk. Important to demonstrate how risks can be identified and then reduced.

Chapter 1: Page 20,21