Explain two elements of a procurement strategy and why these are important

Question 1

Explain two elements of a procurement strategy and why these are important

Answer 1

• Make or Buy

- the contractual approach

Question 2

Explain two elements of a procurement strategy and why these are important - make or buy 1

Answer 2

The first important element of a procurement strategy is the Make or Buy decision that an organisation needs to make: Once the project scope and requirements have been defined, the make or buy decision can be made.

Question 3

Explain two elements of a procurement strategy and why these are important - make or buy 2

Answer 3

The host organisation will decide if it should create the product or service itself (Make) or outsource the creation of the product or service (Buy). Internal organisational capability and capacity are the initial determining factors on whether an organisation will choose to Make or Buy.

Question 4

Explain two elements of a procurement strategy and why these are important - make or buy 3

Answer 4

However, if an organisation decides to outsource (Buy) a service or a product and finds that no suppliers have the capability to deliver, an organisation may decide to make the product itself. This could also mean that an organisation has spotted a gap in the market and can sell this product/service to other organisations.

Question 5

Explain two elements of a procurement strategy and why these are important - the contractual approach 1

Answer 5

Another element of the strategy describes the contractual approach being taken. The choice will depend on a number of factors but one of the main elements is the ability to fully specify the work and our approach to risk.

Question 6

Explain two elements of a procurement strategy and why these are important - the contractual approach 2

Answer 6

For example, we could use one comprehensive contract but then all our eggs are in one basket and we may find it difficult to find a supplier who can do everything. We could use sequential contracting where we let a contract a stage at a time for the work. This reduces the eggs in one basket risk, but the costs are not wholly known at the start because we have a quote for the first stage and estimates for future stages.

Question 7

Explain two elements of a procurement strategy and why these are important - the contractual approach 3

Answer 7

Or we could use parallel contracts where we manage the interfaces between the various suppliers. This is more cost-effective, but we have to have the time and skill to manage the suppliers. This is important as it highlights the contacting approach and the risks concerned with it.