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CIPS - Chartered Institute of Procurement and Supply > D5 - Managing Contracts and Relationships in Procurement & Supply > Flashcards

D5 - Managing Contracts and Relationships in Procurement & Supply Flashcards

1
Q

What attributes will a good relationship have?

A
  1. Positive Interaction
  2. Transparency and trust
  3. Commitment to build a relationship
  4. Mutuality of vision and benefits
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2
Q

What different organisational set ups can be adopted?

A
  1. Multi functional - different people from different functions
  2. Multi skilled - team of people each with differing skills
  3. Project - for a period a team is brought together for the project.
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3
Q

Describe the relationship spectrum from competitive to collaborative

A
  1. Adversarial
  2. Arms Length
  3. Transactional
  4. Closer Tactical
  5. Outsourcing
  6. Strategic alliance
  7. Partnership
  8. Co-destiny
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4
Q

Describe Kraljics matrix

A

Value is along the x axis and risk is on the y axis.

High Value, High Risk - Strategic
Low Value, Low Risk - Acquisition
High Value, Low Risk - Leverage
Low Value, High Risk - Bottleneck

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5
Q

Describe the supplier preferencing matrix

A

Value is along the x axis and attractiveness of the account is on the y axis.

High Value, High attactiveness - Core
High Value, Low attractiveness - Exploitable
Low Value, High attractiveness - Development
Low Value, Low attractiveness - Nuisance

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6
Q

What elements are in the macro-environment?

A 
S - Social
T - Technological
E - Environmental
E - Economic
P - Political
L - Legal
E - Ethical
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7
Q

What can be done to understand an organisations ability to react to the environment?

A

SWOT analysis

Along the x axis, negative and positive and along the y axis, Internal and external

Positive, Internal - Strenghts
Negative, Internal - Weaknesses
Positive, External - Opportunities
Negative, External - Threats

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8
Q

What are Porters 5 forces of competition?

A
  1. Supplier bargaining power
  2. Buyer bargaining power
  3. Threat of new entrants
  4. Threat of substitutes
  5. Market rivalry
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9
Q

What must a company achieve to have added value?

A
  1. Cost leadership, or
  2. Differentiation (unique selling point), or
  3. Focus (around demographic/age)
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10
Q

What categories of waste are there?

A
  1. Over production
  2. Transportation
  3. Waiting
  4. Motion - unnecessary movement, bending or stretching
  5. Over processing
  6. Inventory (over stocking)
  7. Defaults or corrections and rework
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11
Q

What are advantages of a good supplier relationship?

A
  1. Trust and sharing of data or information
  2. Improved risk management
  3. Business efficiency through reduction of waste
  4. Greater profit through cost reduction
  5. Competitive advantage
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12
Q

What is the difference between common law and statute law?

A

Common law is developed through the law of the land and judgement of the courts.
Statute law is legislation forming rules usually enacted by regional or national governments.

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13
Q

What do you need to make a contract?

A
  1. Capacity
  2. Intent
  3. Consideration
  4. Offer
  5. Acceptance
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14
Q

What can invalidate a contract?

A
  1. Mistake, a party didn’t mean to commit themselves to a legally binding contract
  2. Duress, if either party has not freely entered into the contract
  3. Undue influence, when someone has been persuaded into it using mistrust
  4. Illegality, where the objective of the contract is illegal
  5. Misrepresentation, where a false claim about what the product would deliver
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15
Q

Name some model forms of contracts.

A
  1. NEC - New Engineering Contract
  2. BEAMA - British Electromotive and Allied Manufacturers Association
  3. NAECI - National Agreement for Engineering and Consulting
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16
Q

Where could an implied term come from?

A
  1. Fact, courts may decide on a legal decision if it was expressly written into the contract or not.
  2. Custom, the way things have been delivered in the past may imply terms
  3. Law, if it is implied by statutory or legislative requirements
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17
Q

What implied laws are in place to protect a buyer of goods?

A
  1. Right to sell
  2. Fit for intended purpose
  3. Corresponding description
  4. Quality
  5. Sale by sample
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18
Q

What is the difference between a condition or warranty?

A

Conditions are essential terms in the contract which if not abided with would constitute a material breach of contract and usually termination rights are available to the affected party.
Warranties are lesser obligations and would usually constitute a material breach however the affected party may still claim damages.

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19
Q

What remedies are available to the affected party after a breach of contract?

A
  1. Specific Performance, the court orders the defendant to carry out the objectives under the contract.
  2. Injunction, the court orders someone to do or not to do something to prevent the breach of contract.
  3. Quantum Meruit, a principle that entitles a party which has delivered work to fair and reasonable pay.
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20
Q

What is an exclusion clause? Give an example.

A

It is a clause which removes obligations from a party in certain situations, e.g.

  1. True exclusion clause, Force majeure
  2. Limitation clause, Limit of Liability
  3. Time exclusion clause, rights must be exercised within a certain amount of time or they are invalidated
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21
Q

What do you need to make an exclusion clause valid?

A
  1. Incorporated into the contract
  2. Clear and concise
  3. Fair and reasonable
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22
Q

What reasons are there for terminating a contract?

A
  1. Termination for convenience
  2. Breach of contract
  3. Defined events e.g. insolvency
  4. Frustration e.g. the contract becomes impossible to deliver
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23
Q

What risks are there when contracting?

A
  1. Poor quality
  2. Late delivery
  3. Financial insecurity
  4. Succession management
  5. Lack of capacity
  6. Legal risks
  7. Reputational risks
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24
Q

What risks are there around information assurance when contracting?

A
  1. Loss of data
  2. Data corruption
  3. Unauthorised access
  4. Input errors
  5. Compliance risks (IPR / Copyrights)
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25
Q

What steps are in the risk cycle?

A
  1. Identify the risk
  2. Categorise and understand risk
  3. Quantify risk
  4. Allocate risk owner
  5. Mitigation Strategy
  6. Implementation
  7. Ongoing monitoring of risk
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26
Q

How can risks be identified?

A
  1. STEEPLE (macro environmental analysis)
  2. Looking at historic trends
  3. Running financial reports and trend analysis
  4. Examining single point vulnerabilities
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27
Q

How can you quanitfy risk?

A

Risk = Likelyhood * Impact

28
Q

What methods are there of managing risks?

A

The Four T’s

  1. Tollerate
  2. Treat
  3. Transfer
  4. Terminate
29
Q

What are the 4 categories of risk?

A
  1. Supply market risks (particularly to do with suppliers)
  2. Legal risks (failure to comply with statutory requirements)
  3. Compliance risks (failure to deliver a term of a contract)
  4. International risks (currency fluctuations, standards etc)
30
Q

What are the benefits of contract management?

A
  1. Early identification of problems
  2. Performance management
  3. Innovations and improvements
  4. Improved communications
  5. Assurance of fulfillment of contractual obligations
31
Q

What governance do you need in place to manage contracts effectively?

A
  1. Responsibilities - everyone must have clear responsibilities and understand them
  2. Reporting - methods of reporting on performance
  3. Communication - Discussion between buyer and seller
  4. Procedures - How things should be delivered must be written into clear procedures
32
Q

What are the pros of single point of contact vs multiple touch points?

A

Single point of contact is good for consistency in approach, relationship building, maintaining control and known contacts.
Multiple touch points is good because you rely less on one individual, access to a variety of experts, avoids bottlenecks, widens the relationship.

33
Q

What are the 6 roles of a contract manager?

A
  1. Ensure obligations under the contract are met.
  2. Ensure performance and contract control.
  3. Relationship management.
  4. Risk management
  5. Amending contractual conditions
  6. Dispute resolution
34
Q

What contract administration duties should a contract manager also carry out?

A
  1. Document control
  2. Payment
  3. Reporting
  4. Lessons learned
  5. Contract completion
35
Q

What information must a supplier provide to allow the buyer to manage the contract effectively?

A
  1. Supplier organisation plan (who is responsible for what tasks)
  2. Project plan including milestones
  3. Human resources plan (where people will be deployed)
  4. Expenditure plan (financial plans, helpful for pain/gain share contracts)
36
Q

What is the difference between contract management and supplier relationship management?

A

Relationship management is more holistic and often looks at many contracts, innovations and improvements, building trust or longer term company objectives.

37
Q

What is the difference between supplier appraisal and supplier rating?

A

Supplier appraisal is pre contract award (upstream), Supplier rating is post contract award (downstream)

38
Q

What parameters might you be looking at when appraising a supplier?

A

The 5 rights or Carters 10C’s

Cost, Compatibility, Culture, Cash, Capability, Competence, Commitment, Control, Consistency, Compliance, Communication

39
Q

How can you create motivation for a supplier?

A

Incentive (Financial, Future business, Attractiveness of business, Good personal contact) or Penalty (Termination, Reduction in business, Poor supplier rating, Financial)

40
Q

What considerations must a contract manager about how he manages each of his suppliers and contracts.

A
  1. What structure should be used for management (single source / dual source / direct contract relationships / outsourcing with sub-contractors)
  2. What type of relationship should be adopted (transactional, closer tactical etc)
41
Q

Why might a buyer / supplier relationship breakdown?

A
  1. Changes in strategic objectives of either party
  2. New suppliers of products
  3. Communication or trust break down
  4. Personnel changes
  5. Relationship comes to natural end
42
Q

What things need to be done at the end of a relationship?

A

Contractually - returning of propety, payment, dispute resolution
Relationship - feedback, handover, post contractual arrangements

43
Q

What can you benchmark a suppliers performance against?

A
  1. Defined levels
  2. Past performance
  3. Other suppliers performance
44
Q

What is the difference between qualitive and quantitative KPIs?

A

Quantitative KPI’s are measurable

Qualitive KPI’s are subjective

45
Q

What KPI’s could be employed in a contract?

A

Price, Timely delivery, Responsiveness, Down time, Innovation, Quality

46
Q

What continuous improvement principles can be used?

A

Financial, Customer service, Internal processes, learning and growth

47
Q

How can the cost of quality be split up?

A
  1. The cost of ensuring quality

2. The cost of putting right quality events

48
Q

How can you ensure quality?

A
  1. Quality Assurance (preventing quality events)
  2. Quality Control (defect detection after the event)
  3. Continuous Improvement (plan, do, check, act)
  4. Total Quality Management (right first time culture)
49
Q

What is meant by facilitative and directive supplier development?

A

Facilitative is win/win discussion with the supplier and working together.
Directive is win/lose directing the supplier how things need to be done

50
Q

What techniques can be used for supplier development?

A
  1. Seconding a member of the buyers team to the seller.
  2. Seconding a member of the sellers team to the buyer
  3. Providing expertise
  4. Offering training to the suppliers staff
  5. Providing or loaning equipment
  6. Granting access to IT systems
51
Q

What supply chain improvements can be achieved through supplier development?

A
  1. Introducing IT systems
  2. Planning or logistics and storage
  3. Training and contract relationship management
  4. Increase in information flow
  5. Accurate demand forecasting
  6. Optimising the supply base
  7. Removing non-value add activities
  8. Early supplier involvement
  9. Implementing supplier development
52
Q

EXAM: Explain one difference between internal and external relationships (5)

A
  1. Internal relationships are unlikely to have contractual obligations
  2. Internal colleagues are working towards the same objectives
  3. Payment for services from external suppliers may impact on the relationship
  4. There is no option to switch internal relationships if they fail
  5. Internal customers are often personally known with established channels of communication
  6. There may be conflicts of interests with external suppliers
  7. Internal services prices are set without the buyer having the opportunity to shop around
  8. Internal relationships can become adversarial without the option to end
53
Q

EXAM: Describe one relationship type that might be appropriate for a strategic procurement (6)

A
  1. Single sourced - secures commitment from the supplier and can develop into preferred customer basis or exclusive arrangements.
  2. Strategic Alliance - appropriate when supplier and buyer are able to achieve objectives more easily by working together. It isn’t normally permenant arrangement and they remain independent but share success.
  3. Partnership - when the buyer and supplier agree to collaborative working to provide an enhanced offering. The relationship is designed to achieve rewards for both parties.
  4. Co-destiny - Closest type of relationship where collaborative working will benefit both suppliers who succeed or fail together with the same long term objectives.

Suited well because risk management and sensible investment can be discussed.

54
Q

EXAM: Describe one relationship type that might be appropriate for a routine procurement (6)

A
  1. Arms length relationship - generally impersonal and distant. Used for transactional work and try to be efficient in dealing with by using e-auctions or spot buys.
  2. Transactional relationship may have more regular purchases but the buyer will still compete work.

Suited well because little time is spent building relationships

55
Q

EXAM: Explain two advantages and two disadvantages of single sourcing - one of the types of relationship on the relationship spectrum (8)

A

+ Develop close and collaborative relationships which may lead to cost reduction
+ Recieve preferrential treatment from the supplier
+ Helps the buyer achieve minimum order quantities
+ Potential for volume discounts
- Supply risk and supplier risk leave the buyer exposed
- May get complacency from the supplier
- Buyer could be locked into an incompatable relationship and miss out on other market opportunities

56
Q

EXAM: Explain the additional legal issues that may arise if goods are purchased from an international supplier rather than from a domestic supplier (25)

A

Offer and acceptance may have different rules, discuss the role of the UN and the vienna convention trying to set international trading rules.
Duties of the seller imposed by the VC - Deliver the goods, Deliver the correct documents including insurance, Transfer ownership when all documents have been fulfilled
Duties of the buyer imposed by the VC - Take delivery of goods, Pay the contract price when no defects
Applicable law and jurisdiction risks. Discussion around rome convension making the applicable law the most relevant.
Additional documentation e.g. bill of lading, credit notes
Use of Incoterms

57
Q

EXAM: Explain and give examples of FIVE types of risk that may potentially impact on the management of contracts (25)

A
  1. Internal risks (lack of procurement experience)
  2. Macro environmental issues (STEEPLE)
  3. Compliance risks (illegality in supply chain)
  4. Supply risks (failure to deliver obligations)
  5. Reputational risks
  6. Operational risks (quality defects)
  7. Market risks (rising commodity prices)
58
Q

EXAM: Explain TWO ways of measuring supplier performance (10)

A
  1. KPI’s and / or SLA’s
  2. Benchmarking
  3. Vendor Rating
  4. Balanced scorecards
59
Q

EXAM: Explain THREE ways in which an existing supplier’s performance might be
improved (15)

A
  1. Feedback and communication, discussing areas for improvement
  2. Supplier development initiatives (capital, machinery, staff, lending resource)
  3. Carrot / Stick
  4. Competition of supplier performance compared
  5. KPI’s or SLA’s (setting expectations)
  6. ensuring positive relationships and win/win objectives
60
Q

EXAM: Explain, using an example, how the Social external environmental factor impacts on relationships in supply chains (5)

A

This factor might include the demographics of the supply market such as gender, age, ethnicity, population movements and education. These have an impact on the demand for products and services and therefore on the supply chains serving a particular constituency. Suppliers and buyers may need to work together to ensure that they understand the supply market and are able to adjust their products as needed e.g. Nappies for a baby boom. An aging population may need more medical care, adapted housing or a growth in the birth rate requiring everything from more schools to an increased demand for babies’ nappies.

61
Q

EXAM: Explain, using an example, how the Technological external environmental factor impacts on relationships in supply chains (5)

A

This factor might include the use of technology and how it has changed the way in which supply chains work; from making it easier to conduct business in remote parts of the world to enabling faster and more accurate communication between supply chain members e.g. increased email and use of web conferencing. E-procurement has revolutionised both the way consumers purchase end products while expanding knowledge of supply markets for buyers everywhere.

62
Q

EXAM: Explain, using an example, how the Economic external environmental factor impacts on relationships in supply chains (5)

A

This factor looks at a range of economic influences in the environment including recession and depression, exchange rates, and import taxes and duties. Where you have a situation where exchange rates change considerably it may result in products becoming too expensive from an existing supplier overseas and therefore an alternative sources, perhaps within you own country needs to be found. This could impact a number of long term relationships that suddenly become unviable. The 2008 world financial crisis plunged the majority of world economies into deep recession causing widespread employment and soaring budget deficits in many regions including the US and the EU.

63
Q

EXAM: Explain, using an example, how the Political external environmental factor impacts on relationships in supply chains (5)

A

The natural environment covers factors such as legislation, government targets in relation to environmental protection and sustainability, issues of pollution, waste management, recycling and disposal as well as consumer demand for eco-friendly products and business processes. Where the environmental factors become of high importance to a particular market all the suppliers in that market will need to incorporate this into their procedures e.g. the supply of sustainable sources of timber.

64
Q

EXAM: Explain, using an example, how the Environmental external environmental factor impacts on relationships in supply chains (5)

A

This factor relates to the impact of governments laws, political pressure groups such as trade unions and trade agreements. This may mean that an existing supplier may no longer be able to be used if there is a ban on trading put in place for certain countries or even products. This will mean that new supplier relationships may need to be determined e.g. the UK’s decision to leave the EU may impact a number of relationship.

65
Q

What is a balanced scorecard and what 4 perspectives does it take to rank supplier performance?

A

A balanced scorecard is a metric used to rank a suppliers or businesses performance using more than just financial information which can be very short term. It considers the following perspectives:
1. Financial perspective (creation of value for customers)
2. Growth and Learning perspective
3. Customer perspective (how effectively it delivers value for its customers)
4. Internal perspective (how the organisation adds value)
SMART objectives must be set in each area.

CIPS - Chartered Institute of Procurement and Supply (7 decks)

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