D3 Exam Questions Flashcards
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1
- Supplier 3 is described as a small firm or enterprise.*
- *(a) Explain THREE advantages that BS might obtain by sourcing the mountain bikes from a small firm such as Supplier 3.**
(10 marks)
January 2014
- Access to a wider/inclusive market that is not merely confined to large suppliers; potentially lower prices due to lower overheads associated with smaller organisations;
- Shorter decision making channels due to absence of bureaucracy;
- Greater flexibility and responsiveness especially in small order situations;
- Greater commitment as BS is likely to be a core customer;
- Small suppliers are usually local (as Supplier 3 is) with shorter supply chain advantages in transport/logistics and communication; etc.
1
Supplier 3 is described as a small firm or enterprise.
(b) Explain TWO disadvantages that BS might encounter by sourcing the mountain bikes from a small firm such as Supplier 3.
(10 marks)
January 2014
- Overdependence on BS
- Lack of expertise to understand or interpret complex requirements; lack of capacity for larger order volumes
- Financial instability which might compromise supplier performance or vitiate the contractual terms on payment (chasing early payment), quality(cutting corners), lead times (stock outs), etc;
- Lack of economies of scale hence higher costs/prices;
- Perceptions and attitudes that are averse to structured business approach employed by BS –e.g. tendering processes, credit terms, etc;
- Lack of expertise, time or resources for marketing, research and development to assure future supply continuity
It is a pre-contract procurement process that is concerned with ‘how and where the products or services are obtained’; the process of identifying, selecting and developing suppliers; etc.
1
b) Describe FOUR stages of the sourcing process that might be used by LOCOG.
(4 marks)
March 2014
- Identification of the requirement or need – the specification, the quantities, whether a new requirement or a rebuy/replenishment, etc.; the case study examples would include medals, sports equipment, catering equipment, etc.
- A sourcing plan – the buying team would refer to the existing sourcing policy or determine the sourcing strategy or methodology to apply - e.g. single or multiple sourcing; whether to use competitive tendering or direct negotiation; whether to source locally or internationally; establishing the award criteria, contractual requirements and processes; etc
- Market analysis- this would involve analysing demand and market patterns; identifying new potential suppliers; general risk assessment by evaluating the business environmental factors.
- The identification and/or pre-qualification of suppliers – using available sources of data on supply sources (existing and potential suppliers); applying key criteria (technical, financial, commercial, etc) to pre-screen and determine suitable suppliers who meet LOCOG’s standards; engage the identified supplier using appropriate tools such as PQQ or RFI, RFQ or ITT, depending on the sourcing process or methodology adopted. Some answers divided this stage into two – identification and pre-qualification – and marks were earned appropriate to the depth of detail presented.
- Evaluating supply offers /options – depending on the methodology adapted, LOCOG would receive (from pre-qualified suppliers) quotations or tenders/bids for evaluation against the established criteria and /or enter into negotiations with one or more of the suppliers. The ‘winning’ supplier would be the one offering the best value solution to the requirement – candidates with public sector background seemed to favour the term ‘MEAT’ (Most Economically Advantageous Tender).
- Creating contractual relationship – this would be the final stage of the process when all clarifications have been made a purchase order/contract/framework agreement or other method of legal relationship is formulated and adopted by both parties.
1
Describe FIVE selection criteria that Magna Racing’s procurement function might use when developing its supplier base.
(20 marks)
May 2014
- Financial capabilities identified by analysing financial statements for profitability, liquidity/solvency, cash flow, business attractiveness to investors, etc –using ratio analysis techniques to determine the supplier’s financial stability.
- Technical capability is determined by establishing whether the supplier has the technology (equipment and knowhow) to meet Magna’s required products /designs.
- Production capacity will determine whether the supplier has the actual production or operational facilities, and human resources, backed by credible evidence of ability to meet the order volumes within the lead times in the short and long term.
- Quality and quality assurance systems -should adequately meet and satisfy Magna’s exacting specification tolerances and relevant compliance requirements. Aspects to examine would include QA/QC processes, quality culture such as TQM, ISO accreditation, etc.
- Sustainability, Ethical, CSR and environmental policies should be compatible and robust enough to protect Magna’s reputation and brand image.
- Organisational systems and culture should show compatibility with Magna’s systems, values, beliefs and norms of behaviour.
- Price and cost factors will identify the supplier’s cost structure and pricing strategies which would help in determining how to engage and negotiate with the supplier.
1
Describe 5 other selection criteria that Ben might use when sourcing requirements from external suppliers
(20 marks)
July 2014
- Financial capabilities identified by analysing financial statements for profitability, liquidity/solvency, cash flow, business attractiveness to investors, etc –using ratio analysis techniques to determine the supplier’s financial stability.
- Technical capability is determined by establishing whether the supplier has the technology (equipment and knowhow) to meet Hola’s required products /designs. ie already produces, or has the ability to produce the items. HOLA’s requirements are said to require building to exacting technical standards in order to comply with safety regulations
- Production capacity will determine whether the supplier has the actual production or operational facilities, and human resources, backed by credible evidence of ability to meet the order volumes within the lead times in the short and long term as required
- Quality and quality assurance systems - investigate whether a potential supplier’s systems and procedures are reialiable and whether they are willing to comply with any systems HOLA might require of them. Aspects to examine would include QA/QC processes, quality culture such as TQM, ISO accreditation, etc.
- Sustainability, Ethical, CSR and environmental policies should be compatible and robust enough to protect Magna’s reputation and brand image. determine if the potential supplier has well esatablished plocies and practices that support HOLA’s sustainability/environment requirements eg ISO14000 accreditation.
- Organisational systems and culture They should show compatibility with HOLA’ssystems, values, beliefs and norms of behaviour.
1
(b) Discuss whether competitive tendering would be an appropriate method of awarding the contract to one of the international suppliers of liquid monomer
(8 marks)
Jan 2015
View Exam Paper with Case Study
Similar question 15/01, 18/11
page 32 table 2.2
Competitive tendering might achieve the lowest price for xxxxx. However, this method is subject to such conditions as:
- The value of the procurement should be high enough to justify the expense of the tendering process
- The specifications must be clear and potential suppliers must have a clear idea of the costs involved in fulfilling the contract
- There must be sufficient suppliers in the market to ensure that there is competition
- The potential suppliers must be both technically qualified and keen to win the business
- There must be sufficient time available for the competitive tendering process to be carried out
Competitive tendering is not a suitable method in situations where:
- It is impossible to estimate production costs accurately
- Price is not the only or most important criterion in the award of hte contract
- Changes to the specification are likely as the contract progresses
- Special tooling or set up costs are major factors in the requirement
1
(a) Explain FOUR objectives that Vasseem should aim to achieve, if he decides to negotiate directly with the two international suppliers of liquid monomer.
(12 marks)
Jan 2015
page 31 2.10
- Obtain a fair and reasonable (or advantageous) price for the quantity of goods specified
- To get the supplier to perform the contract on time
- To exert some control over the manner in which the contract is performed
- To persuade the supplier to give maximum co-operation to the buyer’s company
- To develop a sound and continuing relationship with competent suppliers
The case study states that Francois believes that the Ministry should have developed a collaborative partnership approach to sourcing with the three suppliers of the IT equipment.
Outline FIVE benefits for the Ministry of developing this type of approach.
(20 marks)
March2015
p. 29 table 2.1
- Greater stability of supply and supply prices
- Sharing of risk and investment
- Better supplier motivation and responsiveness, arising from mutual commitment and reciprocity
- Cost savings from reduced supplier base, collaborative cost reduction
- Access to supplier’s technoglogy and expertise
- Joint planning and information sharing, sharing supporting capacity planning and efficiency
- Ability to plan long-term improvements
- More attention to relationship management eg access to an account manager
1
A report entitled ‘Review of Efficiency in the Schools System’ published in 2013 found that too many schools continue to purchase products and services individually.
Describe THREE advantages and TWO disadvantages of schools adopting a consortium or group buying approach to sourcing their requirements from suppliers.
(20 marks)
May 2015
p.42 4.26
ADVANTAGES
- By means of enhanced bargaining power, the consortium can obtain discounts that would not be available to individual members - although there may be difficulties in allocating such discounts fairly among them
- A consortium can establish framework agreements, simplifying purchase administration for members. This can lead to significant reductions in transaction and contracting costs, especially in the case of low-value items where the admin cost is disproportionate to the purchase price of the items.
- Consortium members can pool expertise, knowledge and contacts, where these would be beneficial for particular procurement categories or exercises
p.42 4.27
DISADVANTAGES
- There are costs and effort associated with communication and coordination, staff development and policy development
- There is an issue of transparency between consortium members. Buyers need full information about plans, processess, designs and costs in order to make informed procurement decisions: this may expose sope members of a consortium to commercial or intellefctual property risk
- Consortia may suffer from lengthy negotiation and decision processes, which are inefficient and may deter some suppliers from dealing with the consortium
- Members are not obliged to purchase to the agreed specification
- Very large consortia may fall foul of laws and regulations designed to prevent dominant marker players from abusing their dominant market position (eg by dictating pricing)
1
Discuss FOUR criteria that GFATM might apply when awarding the contracts to suppliers.
(20 marks)
July 2015
p.57
- Ability to conform to specification
- Reasons for disqualification
- Lowest Price
- Best value or ‘most economically advantageous tender’ (MEAT)
- Best value and total lifecycle cost
1
a) Explain the term ‘supplier tiering’ in the context of the case study.
(8 marks)
Jan 2016
p. 73 4.8
Tiering suppliers is a form of supply base management in which suppliers are organised such that only first tier suppliers deal directly with the buying organisation. Second tier suppliers will participate in the same supply chain, but will supply first tier suppliers who will assemble or integrate before supplying the buying organisation. The practice originated in the automotive industry and allowed car assemblers to reduce their first tier supply base to below 1000 suppliers. The practice allows the development of differentiated supply relationships with a smaller community of suppliers. Management contracting is a similar practice in the building and construction sector.
In terms of the case study, ESA is a big organisation with a large number of suppliers. It prefers to deal directly with only a small number of these suppliers, these are first tier suppliers. These tier 1 suppliers are given the responsibility of dealing with and managing the other suppliers, the second tier suppliers.
ESA may have a supply chain with thousands of different suppliers in many different countries. Rather than dealing directly with all of these, it might reduce its vendor base to a few hundred first tier suppliers, who in turn will deal with and manage a second tier and potentially third tier or further tiers of suppliers along the supply chain.
1
b) ESA has three prime contractors, Airbus, Thales Alenia Space and OHB. Below these first tier suppliers are lower tier suppliers, who are specialists in engines and flight systems.
Outline THREE benefits for ESA’s procurement function of adopting a supplier tiering approach to sourcing. (12 marks)
Jan 2016
p.74 4.14
- There will be fewer commercial relationships to source and manage and develop instead of having to deal with a large number of suppliers.
- To maintain quality, service and minimise business and reputational risk. However, ESA’s procurement should ‘drill down’ through the tiers - appraising and monitoring policies, systems and performance – thus ensuring sound management of the entire supply chain.
- ESA may influence first tier suppliers to adopt some of its own suppliers as subcontractors or lower tier suppliers. This will ensure continuity of its own business relationships established in previous contracts where such suppliers demonstrated excellence.
- ESA’s procurement function will have fewer tasks and have time to pursue a more strategic focus on issues like sustainable sourcing, global sourcing, relationship development, etc.
- Collaborative partnership with tier 1 suppliers will enable ESA to benefit from their expertise and innovation which is important in ESA’s kind of enterprise
- It may lead to variety reduction and standardisation of parts and components. This will result in cost savings in handling and storage.
1
(a) Describe FIVE sources of information that could be used by WEL’s procurement team for the appraisal of potential suppliers
(10 marks)
Nov 2016
p. 7 3.2
- The buyer’s own database of existing and past suppliers, including records of their offerings, performance evaluations and so on. This can be supplement by the buyer’s lists of preferred, approved or authorised suppliers, indicating which suppliers have been pre-qualified for use
- Formal requests for infromation (RFI), often using pre-prepared questionnaires sent to suppliers who might be of interest
- The marketing communications of potential suppliers: advertising, direct mail, brochures and catalogues, visits from sales reps, wesites, etc.
- Internet search for websites including business directories and listings, searchable databases designed to promoted exports and specialist purchasing resources
- Online market exchanges, austion sites and supplier/buyer forums, whic may also allow the posting of requests for quotation and other exchanges
- Published listings of suppliers and stockists: general directories (eg Yellow Pages) and specialist trade/industry directories and registers
- Trade/Industry Press (newspapers, magazines, journals and bulletins) and specialist procurement journals (ie Supply Management or Procurement Professional)
- Trade fairs, Exhibitions and conferences
1
- The case states that WEL’s procurement manager is considering the possibility of entering into partnerships with selected suppliers in order to gain greater benefits.*
(i) Outline THREE advantages of supplier partnering from the buyer’s viewpoint.
(5 marks)
Nov 2016
p. 29 table 2.1
- Greater stability of supply and supply prices
- Sharing of risk and investment
- Better supplier motivation and responsiveness, arising from mutual commitment and reciprocity
- Cost savings from reduced supplier base, collaborative cost reduction
- Access to supplier’s technoglogy and expertise
- Joint planning and information sharing, sharing supporting capacity planning and efficiency
- Ability to plan long-term improvements
- More attention to relationship management eg access to an account manager
1
- The case states that WEL’s procurement manager is considering the possibility of entering into partnerships with selected suppliers in order to gain greater benefits.*
(ii) Outline TWO disadvantages of supplier partnering from the buyer’s
viewpoint.
(5 marks)
Nov 2016
p. 29 table 2.1
- Risk of complacency re cost/quality
- Less flexibility to change suppliers at need
- Possible risk to confidentiality, intellegctual property (eg if supplies also supply competitors)
- May be locked into relationship with an incompatible or inflexible supplier
- Restricted in EU Public Sector Procurement Directives
- May be locked into relationship, despite supply market changes and opportunities
- Costs of relationship management
- Mutual dependency may create lost of flexibility and control
1
(a) Explain how EML could use the elements of a procurement positioning matrix, such as the Kraljic matrix, to assist its sourcing process. (12 marks)
Jan 2017
p. 5 2.11
Kraljic identifies four types of requirements/items based on value (importance) and supply risk (complexity) effects on the procurement strategy of an organisation as follows:
Non-critical or routine items: are low value/low risk e.g. stationery, which should be processed via low- maintenance sourcing routines such as vendor-managed inventory, blanket ordering and e-procurement.
Leverage items: are high value /low risk where EML should use its buying power to secure best prices and terms by using standardisation, competitive bidding and multi-sourcing/supplier switching.
Bottleneck items: the priority for these high risk/low value items is supply security which is achievable via negotiation, long term contracts, multi-sourcing (back-up contracts), incentives/penalties; and safety stock.
Strategic items: such as major pieces of machinery are high value/high risk. EML should pursue long term collaborative partnership - mutual dependency and investment, total cost focus, etc. The sourcing process
will need to be rigorous to develop and maintain the ‘right’ supply chain partners.
1
(b) Suggest FOUR examples of information about existing suppliers that might be found on the EML supplier database and used as part of EML’s supplier pre-qualification process. (8 marks)
Jan 2017
p.8 table 1.1
Pieces of information about existing suppliers might include the following:
- Contact details – this would show whether the supplier was international or domestic
- Terms and conditions of trade including prices and preferred currency
- Approved or preferred status of the supplier
- Average value and frequency of spend with each supplier
- Special capabilities (e.g. late customisation capability) suggesting selection when special needs arise
- Results of supplier appraisals, audits and ratings
- Vendor performance history (quality, lead times, delivery, compliance, etc.)
- Current systems such as framework agreements and/or call-off contracts in place
- Financial stability of the supplier
1
(b) Describe THREE possible ways in which Steven might involve NEPC’s stakeholders in the sourcing process. (12 marks)
March 2017
p. 9 3.13
- Early buyer involvement (EBI) - buyers are important in providing commercial input to bring the overall success in the product development and supply sustainability.
- A formal committee or a team approach –the preparation of a specification involves reconciliation of conflicting objectives. A committee/team (cross-functional/multi-skilled) is formed comprising members from each stakeholder group –e.g. design, quality, procurement, etc.
- Informal approach –encourage stakeholders to consider both commercial and technical factors affecting their activities; buyers should to challenge the assumptions of users and to suggest alternative methods or solutions; designers and users should seek advice and input before going too far with their initiatives.
- A purchasing co-ordinator approach –this is a formalisation of the informal approach, with procurement staff appointed as ‘liaison officers’ to co-ordinate the required communication.
- An early supplier involvement (ESI) -suppliers are involved at an early stage in the product or service development –thus taking advantage of their technical expertise to improve on the design and costs. – suppliers have tremendous expertise in connection with operational methods, EOQs, substitutes, lead times, packaging, supply sustainability, etc. As Steven lacks public sector experience he will greatly benefit from involving suppliers early in his plans.
- Other appropriate ways - e.g. consultation, focus groups and surveys.
1
(a) Briefly describe FOUR stakeholders that Steven might engage with, as part of NEPC’s sourcing process. (8 marks)
March 2017
p. 9 3.13
a) Stakeholders in NEPC that Steven might engage with as part of the sourcing process might include:
- Users of the items being sourced – e.g. consultants, doctors and nurses, who have a clear understanding of the desired functionality of the required items.
- Finance department, to advise on budgetary concerns especially in capex situations where specialist investment appraisal techniques are required.
- Design function members will be important in contributing to the preparation of the product or service specification
- Suppliers, are likely to have the expertise to contribute to design and specification, sustainability plans and costs
- The quality management team, which will be able to ensure that items being sourced are fit for purpose
- Any other relevant internal or external stakeholders - e.g. the management boards of the NHS Trusts themselves.
1
a) Explain the nature of ‘strategic’ purchases and their likely impacts on CHL’s sourcing process. (10 marks)
May 2017
a) ‘Strategic’ items are highly important and their supply market is characterised by scarcity and high complexity. The items are usually of high value and used over a long time.
The impact of such items on the sourcing process might include:
- The likelihood of mutual dependency and investment between CHL and the supplier.
- The focus should be on total cost, supply security and competitiveness.
- The need to develop long-term, trust-based, mutually beneficial relationships.
- A rigorous sourcing process involving top management and the wider stakeholder interest in order to ensure sustainable long-term relationships.
The sourcing process will be rigorous – with stakeholder
involvement, wide market research including international sources, supplier prequalification, etc. – to find a supplier who can satisfy CHL’s need for installation, service and maintenance.
Include some procurement positioning concepts such as Kraljic matrix,
1
b) Explain the term ‘supplier pre-qualification’ and how it might assist CHL’s sourcing process.
May 2017
p. 11 4.2
Supplier pre-qualification’ is the definition and assessment of criteria for supplier suitability.
- The development of objective evaluation criteria by which suppliers’ suitability will be appraised.
- The screening of potential suppliers against the defined criteria via a PQQ, RFI, etc.
- Pre-qualification may assist sourcing process by saving time and effort or cost as follows:
- Only suppliers meeting the minimum standard/criteria are invited to participate in a sourcing process.
- It facilitates the preparation of an approved supplier list.
- It will be suitable for a specialised type of requirement being considered by CHL.
- It is carried out to pre-screen suppliers to receive an invitation to tender or to quote for a contract.
- It will help to embed qualitative selection criteria in the supplier selection process.
Q1 The case study information states that ZSL’s new approach to sourcing is to use several suppliers, or multiple sourcing.
(b) Describe TWO disadvantages to ZSL of a multiple sourcing approach, compared to single sourcing. (8 marks)
July 2017
p.26 1.7
- They can lead to unnecessarily high procurement costs. A large supplier base means more small orders and higher transaction and admin costs : giving large orders to fewer suppliers, on the other hand, would secure volume discounts and other savings( eg through systems integration with key suppliers)
- They fail to exploit the value adding and competitive potential of concentrating on more collaborative relationships with fewer suppliers (eg continuous improvement over time, co-investment in innovation and quality, better communication and integration and so on)
- They can lead to waste, by retaining suppliers who cannot ( or can no longer) meet the frims’ requirements, or are otherwise not often used - and perhaps by increasing stock variety and profliferation, where different suppliers have slightly different products (so that ordering from multiple suppliers works against standardisation, variety reduction and inventory reduction)
1
The case study information states that ZSL’s new approach to sourcing is to use several suppliers, or multiple sourcing.
(a) Describe THREE advantages to ZSL of a multiple sourcing approach, compared to single sourcing. (12 marks)
Jul 2017
p.26
1
(a) Explain with the aid of a suitable diagram the term ‘supplier tiering’.
(5 marks)
November 2017
1
(b) Explain THREE possible consequences for PBL if it decides to ‘tier’ its supply chain.
(15 marks)
November 2017
(Similar questions Jan 2016)
p.74 4.14
- There will be fewer commercial relationships to source and manage and develop instead of having to deal with a large number of suppliers.
- To maintain quality, service and minimise business and reputational risk. However, ESA’s procurement should ‘drill down’ through the tiers - appraising and monitoring policies, systems and performance – thus ensuring sound management of the entire supply chain.
- ESA may influence first tier suppliers to adopt some of its own suppliers as subcontractors or lower tier suppliers. This will ensure continuity of its own business relationships established in previous contracts where such suppliers demonstrated excellence.
- ESA’s procurement function will have fewer tasks and have time to pursue a more strategic focus on issues like sustainable sourcing, global sourcing, relationship development, etc.
- Collaborative partnership with tier 1 suppliers will enable ESA to benefit from their expertise and innovation which is important in ESA’s kind of enterprise
- It may lead to variety reduction and standardisation of parts and components. This will result in cost savings in handling and storage.
1
(a) Describe FOUR potential benefits for Naturally Me when sourcing from small businesses rather than larger suppliers. (12 marks)
Jan 2018
p. 65 2.6
- Access to a wider supply market, potentially enhancing competition (and therefore lower pricing through the market as a whole)
- Competitive pricing due to lower administrative overheads and management costs
- Greater responsiveness and flexibility (with shorter decision-making and appoval channels)
- Innovation capability and diversity of business solutions, through the early exploitation of new technology, providing products or services in new or underdeveloped markets, or using innovation capability to differentiate themselves from established market players.
- Expertise in focused niche markets
- Willingness and ability to produce small-order, niche, bespoke and customised items ( where larger suppliers may have minimum order quantities and standardised offerings)
- Higher quality specialist products, due to greater skills, originality and commitment where the market is unattractive to larger enterprises)
- Higher commitment and levels of services (due to the value of the business to the supplier)
1
(b) Explain how ethical issues may affect sourcing from Naturally Me’s suppliers. (8 marks)
Jan 2018
p.67 3.2
Ethical sourcing involves the application of moral principles within all stages of the sourcing process. Answers covered aspects at one or more of the following levels: -
• Macro level – might include issues under Ethical Trade Initiative (ETI) such as globalisation, labour exploitation, and industrialisation impact on the environment. These are key issues for Naturally Me to address and provide economic, social and environmental safeguards for its Sherabu oil supply chain.
• Corporate level – might include policies on stakeholder interaction, CSR, environment and sustainability, fair trading and labour standards in the supply chain.
• Individual level – might include adherence to a code of ethics in areas such as fairness, transparency, confidentiality, conflict of interest, etc., within the sourcing/tendering process.
p.68 3.3
- The promotion of fair, open and transparent competition in sourcing (and the avoidance of unfair, fraudulent, manipulative or coercive sourcing practices)
- The use of sourcing policies to promote positive socio-economic goals such as supplier diversity, support for local and SME suppliers, and minimisation of transport miles (to reduce environmental impacts and carbon emissions)
- The specification and sourcing of ethically produced inputs (eg certified as not tested on animals, drawn from sustainably managed or renewable sources; or manufactured unders afe woprking conditions)
- The selection and management of suppliers to promote ethhical trading, environmental responsibility and labour standard at all tiers of the supply chain (eg by prequalifiying suppliers on CSR policies, ethical codes, environmental management systems, reverse-logistics and recycling capabilities, and supply chain management; and incentivising, monitoring and developing supplier ethical performance)
1
The case study states that Grocery Grande had experienced a poor service from the recruitment agency EmployUS, which resulted in a negative effect on staff resources.
Explain FOUR areas that an organisation, such as Grocery Grande, might use to monitor the performance of its suppliers. (20 marks)
March 2018
p.19 table 1.3
Areas which an organisation might use to monitor supplier performance might include: -
- Quality- e.g. the reject, error or wastage rates of goods delivered to its restaurants; the number of customer complaints received; adherence to quality standards, etc. In terms of recruitment services, the may assess the agency’s conformance to the vacancy specification, effective skills match of recruits, and compliance with the regulatory requirements
- Delivery – e.g. the frequency of late, incorrect or incomplete deliveries; the percentage of on time in full (OTIF) deliveries; In terms of recruitments services they may assess the agency’s ability to provide shortlisted candidates by the specified date
- Service and relationships – e.g. the competence and co-operation of the supplier’s account manager, or promptness in dealing with queries and problems, adherence to after-sales service.
- Financial stability - the supplier’s ability to meet financial commitments and claims; to maintain quality and satisfy delivery expectations
- Innovation capability – e.g. the number of innovations proposed or implemented; the level of investment in research and development
- Technology - leverage and compatibility in terms of the number of electronic transactions; the supplier’s willingness to adapt to Grocery Grande’s technology and processes
1
Crown Agents helps clients to adopt a strategic sourcing approach by providing advice on a range of subjects, including the measurement of supplier performance.
Describe FIVE criteria that Crown Agents’ clients may use to monitor and measure the performance of their suppliers. (20 marks)
May 2018
p.19 table 1.3
The criteria that Crown Agents’ clients may use to monitor and measure supplier performance might include: -
- Price: - this would include basic purchase price or whole life cost comparisons and percentage cost reductions. Emphasis on value for money is a key focus in public sector environments.
- Quality/Compliance: - this might mean reject, error or wastage rates of goods delivered; the number of complaints received from end users; adherence to quality; etc. There could be a requirement for compliance with regulatory standards on environmental; CSR, etc. (e.g. emissions of the purchased vehicles).
- Delivery: - might refer to the frequency of late, incorrect or incomplete deliveries; the percentage of on time in full (OTIF) deliveries; etc. considering the criticality of many of the items procured.
- Service/relationships: - e.g. the competence and co-operation of the supplier’s account manager; promptness in dealing with queries and problems; adherence to the terms of after-sales service.
- Financial stability: - the supplier’s ability to meet financial commitments and claims, to maintain quality and satisfy delivery requirements of Crown Agent’s clients.
- Innovation capability: - the number of innovations proposed or implemented, and the level of investment in research and development (e.g. vehicles and laptops are subject to quick changes).
- Technology leverage and compatibility: -e.g. the number of electronic transactions achieved; the supplier’s willingness to adapt to Crown Agents’ global systems; etc.
- Other factors – e.g. prompt and accurate documentation/invoicing; good labour relations; etc.
1
(a) Explain the nature of ‘strategic’ purchases and their likely impacts on Zingle’s sourcing process.
(10 marks)
July 2018
- They are important or core to the existence of the business as a brand and its ability compete in the market.
- They are of a long term nature, i.e. not easily changed or substituted in the short term, as in in the case of Zingle’s orange flavouring purchases.
- The market for these purchases is highly complex due to the limited number of global suppliers, thus requiring a clear understanding of the supply market capabilities and drivers.
- They require long-range, high-level decision making processes, e.g. need for robust procurement policies in such areas as sustainability/ethics, the supplier base, supplier relationships, etc.
- The sourcing process for strategic purchases would naturally focus on long term mutual dependency between Zingle and its suppliers, and therefore concerns for: -
- Rigorous sourcing processes to ensure strong long term relationships are developed. Some of the key factors to be considered would include total acquisition cost, security, sustainability and supply competitiveness.
- Long term contracts would need to be considered for such items with long-term nature, potential high risk and strategic impact (relevant aspects from Kraljic matrix may be discussed). Orange flavouring for example is a natural extract most likely subject to ‘commodity’ markets which are characterised by volatile supply.
Higher scores were given to candidates that demonstrated depth of theoretical understanding and application, e.g. by including relevant concepts from Kraljic Matrix.
1
(b) Explain how the adoption of ‘supplier pre-qualification’ might assist Zingle’s sourcing process.
(10 marks)
July 2018
‘pre-qualification’ is the screening of suppliers to identify their suitability based on predetermined criteria. The process could be carried out using a pre-qualification questionnaire (PQQ) or request for information. The case study information states that Fruity Flavours meets Zingle’s supplier criteria apart from its financial stability- perhaps confirmed by a prequalification process. Supplier prequalification
would assist Zingle in its sourcing process in the following ways: -
Only suppliers with certain minimum standards of capability, capacity, sustainability and
compatibility, etc. are invited or considered for participation in a sourcing process.
It enables Zingle to prepare an approved list for suppliers that are already pre-screened prior to
receiving any invitations to tender or RFQs. The case study information states that Zingle has not run
a competitive tender process for orange flavouring for 15 years.
Pre-qualification helps to embed qualitative selection criteria into the supplier selection process.
However, this should not compromise fairness and economic sense in the final selection decision.
Pre-qualification of alternative suppliers to Fruity Flavours could provide Zingle an opportunity for potential
supplier switching through a tendering.
1
Assess whether competitive tendering might be an appropriate method of awarding the contract for the marketing package. (20 marks)
Nov 2018
Competitive tendering might achieve the lowest price for Hughes and Son. However, this method is subject to such conditions as: -
- The value of the procurement should be high enough to justify the expense of the tendering process
- The specifications must be clear and potential suppliers must have a clear idea of the costs involved in fulfilling the contract
- There must be sufficient suppliers in the market to ensure that there is competition
- The potential suppliers must be both technically qualified and keen to win the business
- There must be sufficient time available for the competitive tendering process to be carried out
Competitive tendering is not a suitable method in situations where: -
- Price is not the only or most important criterion in the award of the contract
- Changes to the specification are likely as the contract progresses
- To get merit/distinction grade:*
- The value of the contract is high relative to the size of the business; the specification is still being developed; there is a wide range of potential suppliers who may be technically qualified; and there is time to carry out the process.*
- Besides securing the lowest price, competitive tendering ensures fairness and genuine competition by involving a wide range of suppliers.*
State whether or not the budgeted spend of $100,000
is a high or low contract value, in terms of justifying the cost of tendering.
Suggest alternative methods of awarding the contract, e.g. direct negotiations with suppliers or issuing Requests for Quotations (RFQs) to at least three potential suppliers.
2
- One of the objectives set for Geri by the supply chain director is to develop supplier selection criteria.*
- *Suggest FIVE appropriate selection criteria that Geri might recommend.**
(20 marks)
January 2014
- Financial capabilities identified by analysing financial statements for profitability, liquidity/solvency, cash flow, business attractiveness to investors, etc –using ratio analysis tools;
- Technical capability relates to whether the supplier has the technology (equipment and knowhow) to meet BS’s requirements;
- Production capacity will determine whether the supplier is able to meet the order volumes within the lead times in the short and long term;
- Quality and quality assurance systems should adequately meet and satisfy BS’s specifications and relevant compliance requirements;
- CSR and environmental policies should be robust and compatible enough to protect BS’s reputation and brand integrity;
- Organisational culture should determine how the supplier’s values, beliefs and norms of behaviour would impact BS own operations and identity should the supplier be selected;
- Price and cost factors will identify the supplier’s cost structure and pricing strategies, and provide insights on how to engage the supplier.
2
Suggest FOUR selection criteria that LOCOG’s procurement function might have used when identifying appropriate external suppliers in its sourcing plan.
(20 marks)
March 2014
- Production capacity –whether the potential supplier has the resources and flexibility to meet the volume of products or services needed by LOCOG in the short term and in the long term.
- Technical capability - whether the potential supplier has suitable plant/machinery and knowhow/skills to meet LOCOG’s current requirement, and the ability or versatility to adapt to changes in customer requirements.
- Systems capabilities - whether the potential suppliers’ systems and procedures are compatible with those of LOCOG, or whether the suppliers have the willingness to comply with LOCOG’s systems and procedures.
- The quality systems – whether the potential suppliers’ quality management methods/procedures meet the requirements of LOCOG’s specifications, e.g. quality control, quality assurance, total quality management.
- Environmental, Sustainability and CSR policies – whether the suppliers’ policies are robust enough to protect LOCOG’s reputation and brand/image –issues covered here include carbon footprint, greener materials, recycling; labour and trading policies; local community initiatives; etc.
- Financial capabilities - the potential suppliers’ financial stability issues such as profitability, liquidity, investor attractiveness; costing and pricing methods (this could also be discussed as a separate point).
2
The case study states that Franck would like to set up sourcing plans.
Explain the main content of a sourcing plan that Magna Racing might adopt.
(20 marks)
May 2014
- Understanding/defining the business needs/requirements – the nature of Magna’s business or objectives and the current states of affairs operationally; requirements/demand analysis -determining specs, volumes, priorities, etc;
- Engaging the key stakeholders –schedule meetings to help gain leverage on impending decisions in connection with compliance and other sourcing strategies.
- Researching the market –collection and analysis of market data to identify potential suppliers, both new and existing.
- Evaluating the sourcing options and strategies –make or buy, single or multiple suppliers, local or foreign; initial data collected might also help decisions on the strategies and processes to be adopted eg the Kraljic Matrix may come into play.
- Determining supplier selection criteria- financial, production, technical, etc –these are critical in the final objective of securing a supplier that provides the best value for money to be spent on sourcing goods and services.
- Developing a robust supplier selection process through tendering and/or negotiation –there is a possibility for combining tendering process and direct negotiation on the basis of the nature of Magna’s requirements –branded, Magna designed, standard, non-competitive (e.g. travel).
- Determining the final contract award and management process – stipulation of clear terms and conditions of conducting the business relationship.
2
(a) Explain FOUR elements that Ben might include in his sourcing plan
(12 marks)
July 2014
The sourcing plan may include any of the elements represented in the generic procurement cycle from the definition of need to the contract award stage. FOUR elements in a sourcing plan might therefore include: -
- Review of the current supply situation and the organisation’s requirements and determine any apparent issues or risks to address, e.g. the viability of the current supplier base in relation to the Organisation’s requirements.
- Research the supply market situation (structure, composition, competition, etc.) to identify potential suppliers and determine a suitable sourcing approach and the kind of business relationships to adopt.
- Conducting stakeholder consultation to determine the nature of their requirements and objectives
- Generate sourcing options depending on the nature of the product and the market. Such options might include whether the organisation should source through negotiations or tendering (and what type), locally or internationally; from single or multiple sources; outsourcing or subcontracting; etc.
- Develop supplier selection, award and appraisal processto ensure the suitability and competence of the potential suppliers. For this process, the organisation will need to define appropriate selection and award criteria using such approaches as 10Cs thus to deliver the required technical and commercial result.
- Post award elements should be included in the sourcing plan, e.g. KPIs and how the will be monitored; supplier development initiatives to improve supplier performance; etc.
- Devise a strategy for implementing the sourcing plan, e.g. allowing reasonable timescales, engaging and managing stakeholders, and other methods for monitoring and coordinating the effectiveness of the plan.
2
The case study information states that Vasseem realises that any judgements on potential sources should not be based purely on suppliers’ pricing.
Discuss FOUR other criteria that Vasseem might use to select appropriate suppliers. (20 marks)
Jan 2015
2
- The case study information states that the Ministry’s sourcing department does not have a structured sourcing plan.*
- Discuss FOUR elements that Francois might include in a sourcing plan.*
- (20 marks)*
March 2015
View Exam Paper with Case Study
Similar question 15/03, 15/07, 17/03, 18/07
The sourcing plan may include any of the elements represented in the generic procurement cycle from the definition of need to the contract award stage. FIVE elements in a sourcing plan might therefore include: -
- Review of the current supply situation and the organisation’s requirements and determine any apparent issues or risks to address, e.g. the viability of the current supplier base in relation to the Organisation’s requirements.
- Research the supply market situation (structure, composition, competition, etc.) to identify potential suppliers and determine a suitable sourcing approach and the kind of business relationships to adopt.
- Conducting stakeholder consultation to determine the nature of their requirements and objectives
- Generate sourcing options depending on the nature of the product and the market. Such options might include whether the organisation should source through negotiations or tendering (and what type), locally or internationally; from single or multiple sources; outsourcing or subcontracting; etc.
- Develop supplier selection, award and appraisal process to ensure the suitability and competence of the potential suppliers. For this process, the organisation will need to define appropriate selection and award criteria using such approaches as 10Cs thus to deliver the required technical and commercial result.
- Post award elements should be included in the sourcing plan, e.g. KPIs and how the will be monitored; supplier development initiatives to improve supplier performance; etc.
- Devise a strategy for implementing the sourcing plan, e.g. allowing reasonable timescales, engaging and managing stakeholders, and other methods for monitoring and coordinating the effectiveness of the plan.
2
The case study information states that contracts are often awarded to suppliers that submit the lowest prices.
Suggest FOUR award criteria, other than price, that the schools could use to decide which suppliers should be awarded contracts.
(20 marks)
May 2015
2
A new and structured sourcing process was established by GFATM as part of its new proactive approach to procurement. This would involve the development of sourcing plans for goods and services from external suppliers.
Describe FIVE elements that GFATM should include in such sourcing plans.
(20 marks)
July 2015
View Exam Paper with Case Study
Similar question 15/03, 15/07, 17/03, 18/07
The sourcing plan may include any of the elements represented in the generic procurement cycle from the definition of need to the contract award stage. FIVE elements in a sourcing plan might therefore include: -
- Review of the current supply situation and the organisation’s requirements and determine any apparent issues or risks to address, e.g. the viability of the current supplier base in relation to the Organisation’s requirements.
- Research the supply market situation (structure, composition, competition, etc.) to identify potential suppliers and determine a suitable sourcing approach and the kind of business relationships to adopt.
- Conducting stakeholder consultation to determine the nature of their requirements and objectives
- Generate sourcing options depending on the nature of the product and the market. Such options might include whether the organisation should source through negotiations or tendering (and what type), locally or internationally; from single or multiple sources; outsourcing or subcontracting; etc.
- Develop supplier selection, award and appraisal process to ensure the suitability and competence of the potential suppliers. For this process, the organisation will need to define appropriate selection and award criteria using such approaches as 10Cs thus to deliver the required technical and commercial result.
- Post award elements should be included in the sourcing plan, e.g. KPIs and how the will be monitored; supplier development initiatives to improve supplier performance; etc.
- Devise a strategy for implementing the sourcing plan, e.g. allowing reasonable timescales, engaging and managing stakeholders, and other methods for monitoring and coordinating the effectiveness of the plan.
2
Discuss FOUR appropriate selection criteria that ESA might use to assess potential new suppliers in order to increase competition.
(20 marks)
Jan 2016
2
(a) It will be important for WEL to be sure that new suppliers will have
* sufficient technical capability to be able to supply the requirements for the new contract.*
Describe FIVE criteria that WEL could use to satisfy itself that new suppliers will have this technical capability.
(10 marks)
Nov 2016
2
(b) Describe a range of appropriate selection criteria WEL might use to inform the identification of appropriate external suppliers
(10 marks)
Nov 2016
2
Explain FOUR criteria that EML’s procurement manager may use to assess a potential supplier’s systems and procedures, as part of its supplier selection process. (20 marks)
Jan 2017
2
The case study information states that one of Steven’s priorities is to develop a sourcing plan for selecting appropriate suppliers.
Describe FOUR elements that might be included in a sourcing plan for goods and services at NEPC.
(20 marks)
March 2017
View Exam Paper with Case Study
Similar question 15/03, 15/07, 17/03, 18/07
The sourcing plan may include any of the elements represented in the generic procurement cycle from the definition of need to the contract award stage. FIVE elements in a sourcing plan might therefore include: -
- Review of the current supply situation and the organisation’s requirements and determine any apparent issues or risks to address, e.g. the viability of the current supplier base in relation to the Organisation’s requirements.
- Research the supply market situation (structure, composition, competition, etc.) to identify potential suppliers and determine a suitable sourcing approach and the kind of business relationships to adopt.
- Conducting stakeholder consultation to determine the nature of their requirements and objectives
- Generate sourcing options depending on the nature of the product and the market. Such options might include whether the organisation should source through negotiations or tendering (and what type), locally or internationally; from single or multiple sources; outsourcing or subcontracting; etc.
- Develop supplier selection, award and appraisal process to ensure the suitability and competence of the potential suppliers. For this process, the organisation will need to define appropriate selection and award criteria using such approaches as 10Cs thus to deliver the required technical and commercial result.
- Post award elements should be included in the sourcing plan, e.g. KPIs and how the will be monitored; supplier development initiatives to improve supplier performance; etc.
- Devise a strategy for implementing the sourcing plan, e.g. allowing reasonable timescales, engaging and managing stakeholders, and other methods for monitoring and coordinating the effectiveness of the plan.
2
a) Outline FIVE supplier selection criteria that CHL’s procurement manager might use when selecting suppliers.
(10 marks)
May 2017
2
b) Financial checks on potential suppliers are important selection criteria for the identification and qualification of appropriate suppliers.
Explain TWO financial checks that CHL’s procurement manager could use when sourcing suppliers.
(10 marks)
May 2017
2
The case study information states that ZSL’s procurement team was able to help the other business functions identify appropriate award criteria.
Explain FOUR criteria that ZSL might use in its contract award process. (20 marks)
July 2017
2
(a) Explain TWO benefits for PBL of pre-qualifying potential suppliers before engaging them in a tender process. (8 marks)
November 2017
2
(b) Describe FOUR criteria that PBL may use to pre-qualify potential suppliers. (12 marks)
November 2017
2
Explain FIVE selection criteria that Julie’s team might use to identify suitable suppliers for Naturally Me’s new bodycare range. (20 marks)
Jan 2018
2
Identify and justify TWO technical criteria and TWO commercial criteria that could be used by Grocery Grande when considering suppliers during the selection process.
(20 marks)
March 2018
2
Outline FOUR appropriate selection criteria that Crown Agents’ clients could apply when investigating new sources of supply and selecting new suppliers. (20 marks)
May 2018
2
The case study information states that Matt’s priority is to develop a sourcing strategy for selecting appropriate suppliers. Matt will need to develop a sourcing plan to formalise his strategy.
Describe FOUR elements that might be included in a sourcing plan for Zingle. (20 marks)
July 2018
View Exam Paper with Case Study
Similar question 15/03, 15/07, 17/03, 18/07
The sourcing plan may include any of the elements represented in the generic procurement cycle from the definition of need to the contract award stage. FIVE elements in a sourcing plan might therefore include: -
- Review of the current supply situation and the organisation’s requirements and determine any apparent issues or risks to address, e.g. the viability of the current supplier base in relation to the Organisation’s requirements.
- Research the supply market situation (structure, composition, competition, etc.) to identify potential suppliers and determine a suitable sourcing approach and the kind of business relationships to adopt.
- Conducting stakeholder consultation to determine the nature of their requirements and objectives
- Generate sourcing options depending on the nature of the product and the market. Such options might include whether the organisation should source through negotiations or tendering (and what type), locally or internationally; from single or multiple sources; outsourcing or subcontracting; etc.
- Develop supplier selection, award and appraisal process to ensure the suitability and competence of the potential suppliers. For this process, the organisation will need to define appropriate selection and award criteria using such approaches as 10Cs thus to deliver the required technical and commercial result.
- Post award elements should be included in the sourcing plan, e.g. KPIs and how the will be monitored; supplier development initiatives to improve supplier performance; etc.
- Devise a strategy for implementing the sourcing plan, e.g. allowing reasonable timescales, engaging and managing stakeholders, and other methods for monitoring and coordinating the effectiveness of the plan.
2
Describe FOUR appropriate selection criteria that Hughes and Son might apply, when it is investigating new sources of supply and selecting new suppliers. (20 marks)
Nov 2018
p. 50
following typical selection criteria: -
- Financial capabilities and stability- review of the profitability, cash flow and cost structure to support the supplier’s ability fulfil the contract and remain sustainable
- Technical capability - whether the supplier can produce the inputs or deliver the required services.
- This includes ascertaining the supplier’s operational capabilities in areas such as innovation, design and just-in-time supply, and the flexibility for late customisation
- Production capacity - the volume of business that the supplier is capable, or could be capable of handling, in terms of the existing production capacity, the extent to which this is already committed and the potential to increase capacity in the future
- Systems capabilities – whether the supplier’s systems and procedures are compatible with those of Hughes and Son, or its ability and willingness to adapt or integrate
- Quality and quality assurance- the state of the supplier’s quality systems, such as quality assurance or total quality management, to sustain the right quality of goods and services supplied
- Environmental and sustainability – considerations such as the use of environmentally friendly materials and packaging, recycling policies and certification such as ISO 14001, ‘carbon footprint’ associated with the location of the supplier
- CSR, ethical criteria and labour standards – considerations such as robust CSR policies, an ethical code, compliance with ILO standards on worker rights, equality and diversity
- Other acceptable criteria based on theoretical models such as 10Cs; Face2Face; 5 Rights; etc.
3
(a) Explain why it would be important for Geri to assess the financial stability of the three potential suppliers before the award of a contract
(10 marks)
January 2014
- A financially stable supplier will be profitable and potentially flexible in negotiations; it will be solvent and operationally stable-fulfilling its contractual obligations in the short term; and ensuring supply continuity in the long term due to, for instance, its attractiveness to investors; etc.
- On the other hand awarding a contract to a financially unstable supplier would be risky in terms of – delivery disruptions (inability to meet targets); compromising quality (cutting corners); undermining agreed payment terms (e.g. chasing advance payment); going into administration or ceasing trading (with consequential supplier switching costs); etc.
3
(b) Describe TWO financial ratios that Geri might use to establish the liquidity of the suppliers.
(10 marks)
January 2014
For short term liquidity measures two ratios are available -
- the current ratio (or working capital ratio) which should ideally be 2:1 - calculated by dividing current assets (stock, debtors, cash) by current liabilities (creditors, short term loans);
- and the acid test ratio (or quick ratio) which should ideally be 1:1 - calculated like the current ratio but excluding stock from the current assets (stock value is relatively unpredictable and cannot be quickly realised in a desperately dire and urgent liquidity crisis). Where assets do not adequately cover liabilities the indication is that the supplier is financially risky.
For long term liquidity assessment of the supplier BS would use:
- the ‘gearing ratio’. This ratio identifies the proportion of long term funding from debt/loans to (divided by) owners funding (ordinary shareholder funds plus reserves) – this is expressed as a percentage when multiplied by 100. High gearing implies a dependence on borrowed funds which demand regular fixed interest payments to the lenders – a long term financial risk factor.
3
- LOCOG had to assess several hundred suppliers that might be capable of delivering the right products and services on time and to budget.*
(a) Explain TWO liquid ratios that LOCOG’s procurement function might have used to assess the viability of potential suppliers.
(10 marks)
March 2014
The current ratio: - calculated from current assets divided by current liabilities. Current assets would typically consist of debtors, cash and stock, while current liabilities consist of trade creditors and short term bank loans (including overdraft). A viable supplier would have a current ratio greater than 1:1 (ideally 2:1), which indicates sufficient current assets to pay off current liabilities on demand. A current ratio less than 1:1 is indicates financial instability and therefore a risky supplier.
The acid test ratio (quick ratio or acid-test ratio):- calculated from current assets (excluding stock) divided by current liabilities. Stock is removed from the formula, because it might be difficult to quickly realise (turn into cash), or may not be realised at its full value. The acid test ratio should be greater than 1:1, an indicator that the supplier can readily settle its current liabilities from its cash and debtors.
The ‘gearing ratio’ – is a long term liquidity ratio calculated by dividing long term debt/loans (fixed return capital) by owners funding (ordinary shareholder capital plus reserves) and the result multiplied by 100 to be expressed as a percentage. High gearing (high percentage/proportion) implies a dependence on borrowed funds that demand regular long term fixed interest payments to the lenders – a long term financial risk factor. A low-geared supplier would therefore generally be considered less risky in the long term.
3
- LOCOG had to assess several hundred suppliers that might be capable of delivering the right products and services on time and to budget.*
(b) Explain TWO profitability ratios that LOCOG’s procurement function might have used to assess the viability of potential suppliers.
(10 marks)
March 2014
- *Gross profit percentage:**- calculated when a supplier’s gross profit is divided by its sales/turnover and the result multiplied by 100 to give a percentage figure. Normally the higher the gross profit percentage, the more viable the supplier is, but the percentage may vary from industry to industry, and the profitability trends need to be reviewed/explained. A profitable supplier will provide a sense of supply security and commercial flexibility e.g. concessions during negotiations.
- *Operating (or Net) profit percentage:**- calculated by dividing a supplier’s operating (or net) profit by its sales/turnover and multiplying the result by 100 to give a percentage figure. Again, the higher the operating (or net) profit percentage, the more viable the supplier is, but it may vary from industry to industry, and trends need to be explained.
- *Return on capital employed (ROCE):-** calculated by dividing the supplier’s operating profit (before interest and tax) by its average capital employed (shareholder funds plus long term loans) and multiplying the result by 100 to express it as a percentage. Again, the higher this figure, the more viable the supplier as it shows how efficiently the supplier is using its capital. The return a company makes on each £ invested – to cover for interest, dividend and reserves.
- *Return on assets:-** calculated by dividing the supplier’s operating profit by total assets (fixed + current) and multiplying the result by 100 to give a percentage figure. This indicates how well the assets of the company are being used.
3
(a) Explain why Magna Racing should appraise the financial position of its suppliers.
(10 marks)
May 2014
- To ascertain profitability which is a key indicator of stability and potential flexibility in negotiations;
- To know the solvency/liquidity status which would assure Magna that the supplier is financially stable to meet its internal and external obligations;
- The financial data will reveal the supplier’s attractiveness to investors, which is a good indicator of supply continuity in the long term.
- On the other hand awarding a contract to a financially unstable supplier would be risky in terms of – delivery disruptions (inability to meet targets);
- Compromising quality (cutting corners);
- Undermining agreed payment terms (e.g. chasing advance payment);
- Going into administration or liquidation (raising the undesirable possibility of supplier switching costs for Magna Racing)
