First Round - Dec Flashcards
Tendering x 8
Tendering is designed to ensure fair, non-discriminatory and competitive supplier selection,
based on
equality of access to tender information,
selection of suppliers based on price and non-price criteria,
and accountability for decisions
During the pre-qualification process the buyer is assessing the supplier to see if they are suitable to provide the requirements.
The assessment criteria can include questions to check if there is compatibility between the parties ethically and what practices or actions the supplier takes. This can be split into three key areas – people, profit and planet (sometimes called the triple bottom line).
Conclus - adv/dis
- Open – the requirement is advertised and anyone can bid.
- Restricted – The initial process shortlists potential suppliers by going through the selection process, commonly using a questionnaire eg PQQ. Only the suppliers who pass this stage are invited to bid on the tender. This is then evaluated and the winning supplier is chosen.
- prep of detailed specs/draft contracts
accurate spec of requirement must include non-price criteria like quality/sustainability so buyers task will be
simply to check tender meet requirements
choose bids on best value/price.
Means bids can be accurately compared once tender is in process as there is no room for renegotiation/adjustment of specs
- Advertisement of tender -
timetables,
tender procedures to follow
- sending pre-qualification questionnaires in response to
expressions of interest (selective tender)
submission of bids (open tender)
timescales to be returned.
Follow-up information or clarification may be sought
- Issue of invitation to tender (ITT) and tender documentation to those responding to the advertisement or invitation to tender within the prescribed time frame. Tender documents should be issued to each potential supplier in identical terms and by the same date.
Tender documents: 1. an invitation to tender 2 instructions to tenderers; 3 a pricing document 4 the specification; 5 criteria for contract award; 6 contract terms; 7 Deadline for submission; 8 a pre-addressed tender return label.
- Tenders will be received (in the form of sealed bids) for opening by the tender evaluation team, following the closing date for submission . The details of all tenders received will be logged, with details of each listed on an analysis spread sheet for ease of comparison. Each tender will then be analyzed, according to the specified criteria for contract award, with a view to selecting the ‘best offer’.
- Post-tender clarification Verification of supplier information and negotiation, where required.
- The contract will be awarded, and the award notified to tenderers.
8 A best practice tender will also include ‘de-briefing’: the giving of feedback, to unsuccessful tenderers, to enable them :
to improve the competitiveness of future bids,
to develop the market- help the procurement function to improve future tender processes.
Tendering – when to use
Tendering is designed to ensure fair, non-discriminatory and competitive supplier selection,
based on
equality of access to tender information,
selection of suppliers based on price and non-price criteria,
and accountability for decisions
- Open – the requirement is advertised and anyone can bid.
- Restricted – The initial process shortlists potential suppliers by going through the selection process, commonly using a questionnaire eg PQQ. Only the suppliers who pass this stage are invited to bid on the tender. This is then evaluated and the winning supplier is chosen.
Tendering in the private sector is a matter of choice, so the buyer needs to know when to use, and when not.
- The value of the purchase must justify the tendering expense
- Specifications must be clear
- There must be an adequate number of suppliers
- suppliers must be technically competent and must actually want the contract
- There must be sufficient time
Tendering adv / dis x 2 - CONCLUSION
Tendering is designed to ensure fair, non-discriminatory and competitive supplier selection,
based on
equality of access to tender information,
selection of suppliers based on price and non-price criteria,
and accountability for decisions
- Open – the requirement is advertised and anyone can bid.
- Restricted – The initial process shortlists potential suppliers by going through the selection process, commonly using a questionnaire eg PQQ. Only the suppliers who pass this stage are invited to bid on the tender. This is then evaluated and the winning supplier is chosen.
ADV
- fairness and genuine competition
- engages wide choice of suppliers
DIS
- competition is primarily based n lowest price
- insufficient focus n criteria such as quality /sustainability
- wide competition may discourage some suitable bidders
Supplier selection – add value
Explain FOUR ways in which supplier selection may add value in the sourcing process for organisations such as GFATM.
- 4
• Can provide the opportunity to create strategic and collaborative relationships with supplier supporting continuous improvement in key areas of the supply chain, helping to achieve competitive
advantages for the business over the long-term.Help to encourage innovation and creativity from suppliers
• Can help to avoid engaging with suppliers who may be in the midst of current or potential future
financial difficulties.
• Can help to ensure that only those suppliers who have a cultural fit to GFATM’s organisational goals
and objectives including CSR.
Can help to avoid reputational damage to GFATM by ensuring and adopting ethical sourcing and
supplier selection approach.
• Eliminate poor suppliers from the competition early on, saving supplier and buyer time. Can reduce risk through-out the supply chain by ensuring only those suppliers capable of fulfilling the
business requirement are selected.
• .
Supplier management
- Encouraging dialogue with suppliers on process improvements (SMART) / demotivating if not achieveable
- Recommending remedial actions where appropriate
- use of audits or site visits to check the physical site
- Expanding reporting frameworks to include CSR
- Data provided by supplier should be periodically checked for accurancy
- KPIs the buyer should consider the resources required to monitor them, whether the benefits of using them will outweigh the costs
Supplier management
This is the longer term management of the supplier to ensure that the requirements of the contract are being met and to ensure performance is maintained.
This is the process of
- rationalising,
- co-ordinating,
- measuring and monitoring performance (feedback mechanisms)
- developing the potential of suppliers.
use of audits or site visits to check the physical site
Benchmarking may be used to compare a function, process or performance to that of a best in class example. This can be done internally eg comparing procurement effectiveness across different sites in the same company.
Incentive schemes - rewards - benefits - improving performance
These offer rewards for continued excellent performance, could include:
• Preferred supplier status
• Increased or longer term business
- Staged payments or faster payments for early performance
- motivation of suppliers could have benefits :
- increase productivity,
- quality,
- Innovations
- they will be more committed.
Improving performance - they know they are being assessed, it does not fix problems. There also needs to be a process to resolve issues and improve performance, agree a plan of action a d processes
Penalising the supplier - Threatening to reduce business is common and usually linked to decreasing supplier performance . At best they will bring about very short term improvements as the cause of the performance failing is not addressed.
Conclusion
The criteria for gaining the reward should be clear, fair and achievable otherwise the supplier may become demotivated. SMART
Contract Management
Contract development - the forming of a legally binding contract
Contract communication - sharing contract information with key stakeholders
Contract administration - ensuring all of the required procedures and processes are established eg budgeting, ordering processes, change control etc
Managing contract performance - risk management, monitoring of performance, motivating suppliers, continuous improvement, solving problems and conflict etc
Relationship management - creating or maintaining a relationship through communication, motivation, resolving conflict etc
Contract renewal or termination - ensuring the end of the contract is managed, with a view to future dealings or contracts
The process can be a large investment in terms of resources and can require staff, systems integration, meetings etc.
Contract management isn’t just handled by buyers. Many other departments have a role to play e.g.
Legal and finance – providing specialist advice
Finance – invoice queries and managing budgets
Goods in/inspection – delivery information, quality
Sources of suppliers include:
- Past experience – buyers should have a supplier database of current and historical suppliers along with performance data, e.g. WEL’s own database of existing and past suppliers
- Trade fairs, exhibitions and conferences
- Trade and industry press Published catalogues/Trade directories – but these need careful filing
- Formal requests for information – e.g. public sector OJEU
- Networking and information exchange with other purchasing professionals, Other buyers – internal and external
- Marketing communications from potential suppliers
- Internet searches of business directories
- On-line market exchanges, auction sites and forums
Shareholder - ext / int
PRIVATE - / Finance / Research Design and Engineering / Suppliers / Users-Staff
PUBLIC - Staff / MP’s / Taxpayers / Suppliers / End Users
Global sourcing - benefits / growth X 5
During the pre-qualification process the buyer is assessing the supplier to see if they are suitable to provide the requirements
Think triple ? People profit planet
One of the major changes in procurement over the last two decades has been around international sourcing. There has been a huge increase and various factors that have contributed to the growth:
- Cost – the cost of research, production, distribution etc can be spread across world markets. Sourcing efficiencies: these enable the selection of the lowest-cost supplier from anywhere in the world
- Market needs – consumers have similar tastes and wants, as cultural differences reduce. There can be a global demand for some products e.g. soft drinks
• Improvements in transport technology, -
‘shrinking’ of logistics distance and related risks.
Improvements in ICT that are abolishing distance for the purposes of communication,
relationship development,
delivery tracking
performance monitoring.
e.g. packages can be sent from London in the afternoon and be in New York first thing in the morning.
- Progressive reductions in trade barriers (e.g. through trade agreements): this facilitates direct investment and the movement of goods and labour.
- standardised components -Harmonisation of technical standards which has enabled the sourcing of ,standardised components compatible systems, etc. ISO
Conclusion
Governments in most countries are keen on international trade and generally would like to export more than they import. This would mean more money coming into the country than leaving it. A high level of exports would usually mean a high level of employment. •
Country or region-specific supply factors: some goods may only be available from certain countries or may be supplied more efficiently by particular countries due to specialisation.
Tactical sourcing or operational sourcing /Strategic sourcing
Also known as
this is generally for low risk, low spend and often routine items.
There tend to be clearly defined requirements with decisions made on lowest price
There is an increasing movement to reduce the amount of tactical sourcing undertaken by the procurement department (eg through the use of e-catalogues and user purchase) so the focus can be on the strategic elements.
Strategic
This is used for high risk and/or high spend items
sourcing process
involving top management requires longer term and high level decisions
wider stakeholder interest
supplier prequalification
sustainable long-term relationships.
wide market research including international sources
- It requires the analysis of the requirements
the supply market and supplier capabilities. - ‘Strategic’ items are highly important and their supply market is characterised by scarcity and high complexity.
• The likelihood of mutual dependency and investment between buyer and the supplier.
Describe the 5 stages of forming a contract and explain what is needed at each stage
1 Offer – this is what one party is willing to provide to the other party. Offers can also be made to multiple parties or to anyone who wishes to accept it.
- Acceptance – where the party agrees to the offer with no changes, this is called unconditional acceptance. The method of acceptance can be in writing, verbally or by conduct. If any changes are made to the offer, this creates a counter offer and now the other party may choose to accept that or not. The party making the offer cannot use silence as acceptance though as this would not be legal.
3 Consideration – There should be a value to both parties to the contract. it has to have a value but doesn’t need to reflect true market value eg selling a company for £1.
4 Capacity – the parties must be legally able to enter into a contract. This can relate to not being a minor (although some contracts can be agreed by children), not being mentally incapacitated etc.
5.Intention – the parties must have intended to enter a legally binding contract. The courts consider this in two ways – if one or more parties are a company/organisation, then they assume there was intention (unless there is evidence to dispute that) and if it is just a social arrangement they assume there was no legal intention (again unless there is evidence to dispute that).
SOURCING PROCESS Supplier Selection x 6 : 1
S E F C T L
Suck Education, find cash to live
1.systems capabilities / compatible technology
• e-procurement methods such as electronic invoicing
• the ability to provide technology eg the use of RFID (radio frequency identification) tags
• / shared webspace
2 environmental
3 financial capabilities
balance sheet, profit and loss, cash flow – can provide useful information when analysed via financial ratios. Such information will reveal the financial health of the supplier in terms of such aspects as – profitability; liquidity; gearing; attractiveness to investors
gearing is the extent to which the company is funded through debt (loans) rather than money remaining in the business
Profitability - a classic measure of success and having a profit shows that the company is at least covering its costs with its turnover.
Liquidity - there should also be good cash flow in the organisation
4 CSR, ethical and labour
5 – Total lifecycle cost
6 - Location
Impact on costs and availability of supply.
• political unrest in an area it can lead to difficulties accessing stock.
• Weather in some regions can cause delays in shipping or destruction of property.
Currency or taxation fluctuations can make deals financially less stable.
SOURCING PROCESS
Creation of contract terms 2
I D R S R A S
Identify the need Define Strategy Raise Requisition Source Suppliers RFT / ITT Negotiate and Award Contract Supplier Management
- Creation of contract terms,
- Supplier selection
- Contract award
- Contract or supplier management
Not all contract terms are held to have the same level of importance, and breaching them can have different remedies in the courts.
- Conditions - these are terms that go to the very root of the contract, so if breached, they render the performance of the contract fundamentally different from the original objectives. The remedies are that the party can sue for damages and terminate the contract if so wished. Eg
- Warranties - these are minor terms, which just add details to more important terms, and if breached, would not fundamentally change the contract. The remedy is damages only and the contract must continue.
The buyer has the choice of using
bespoke terms (created for the situation),
standard terms (created by the business for repeated use in relatively standard contract situations Standard terms tend to be relatively short documents They are often fairly general as they are going to be used for a wide range of procurements. This can mean they don’t provide as high a protection level as a bespoke contract, but they are a much lower price than bespoke contracts
model form contracts (created by industries for everyone in that industry to use, usually in certain categories eg construction etc).
Implied terms are terms that have been added by law, regardless of the views of the parties. For example some implied terms are so critical that they cannot be amended eg Section 12 (right to sell the goods) of the Sale of Goods Act.
Express terms are put in the contract by the parties. There are many common terms that can be seen in many contracts.
Conclus They can override some implied terms and remove them from the contract. Parties can create any terms they want, but clauses are carefully studied by judges and may be found to be void if they contravene Acts or common law in some way.
SOURCING PROCESS Contract terms types 2
I D R S R A S
Identify the need Define Strategy Raise Requisition Source Suppliers RFT / ITT Negotiate and Award Contract Supplier Management
- Creation of contract terms,
- Supplier selection
- Contract award
- Contract or supplier management
Price - the price should be established as well as any other factors which could alter
the timing of the payments, the method, the currency, any credit terms are available (payment terms), staged payments,
There should be clarity regarding what is and what is not included in the price eg delivery, tax etc.
Conflict resolution clause –
this will state how a conflict will be managed eg initially through
negotiation,
mediation, and finally a legally binding option such as litigation.
Where possible the parties should work together to resolve issues before they go to a formal legally binding process as this is
usually very resource intensive
can destroy the relationship between the parties permanently.
Confidentiality - if either party may see information which could be damaging if released, the information would only have protection if it were subject to a confidentiality clause.
Sometimes tender documents contain a clause that information enclosed is technically or commercially confidential and must not be disclosed or copied.
There is also often a restriction which runs past the date of the end of the contract, to protect information from being passed to rivals etc.
Time of performance - where no time is specified the contract should be performed in reasonable time. Where a contract does specify time, the question then become is the time a condition or warranty. Generally the courts see time as a warranty unless the nature of the contract is such that time matters e.g. fresh goods.
Termination clauses - specify in the contract what defaults will trigger the right to terminate.
• It may be that the parties want to terminate the contract by giving appropriate notice period
• Receivership of the supplier
• Breach of contract
• One party may want to cancel the contract part way through – there is usually provision to pay for work already carried out.
SOURCING PROCESS - award contract criteria 3
I D R S R A S
Identify the need Define Strategy Raise Requisition Source Suppliers RFT / ITT Negotiate and Award Contract Supplier Management
- Creation of contract terms,
- Supplier selection
- Contract award
- Contract or supplier management
Contract award
Evaluating the offers
The offers should be evaluated on the basis of the evaluation criteria which were established at the start of the procurement process. The supplier assessment process will have removed any suppliers who could not carry out the work, so the buyer can now select the bid which is most suitable for the company
Typical criteria which can be used to select the bid include –
- Quality/specification conformance – does the offering match the required quality and specification documents. This may require a cross functional approach
- Currency/price – ideally all responses should use the same currency to allow ease of comparison. The price again should be in a standard format with the same aspects included/not included
• Taxes – these are the money payments which are required when importing/exporting or when selling some items in the country eg VAT. Import duties give local suppliers an advantage as the costs of the duties are often added onto the price of the goods by the importers which increases the price.
.
• Order quantities – in general, the greater the quantity ordered, the lower the price for each unit and the lower the transport cost per item. However, the buyer then has to consider storage costs.
- Transport methods – these vary in costs, time, safety, damage to items etc. The buyer may also want to consider which INCOTERMS to use. These state who is responsible for what during the movement of goods from the supplier to the buyer’s premises.
- Whole life costing – this is consideration of the costs during the whole usage of the item, not just the price paid to secure it. It can apply to any asset but is generally used for higher value fixed assets. The costs include purchase price, acquisition costs, usage costs, maintenance costs, operating costs, training costs, disposal costs.
- Communication – the buyer would want to assess the available communication channels with the supplier and what the supplier is offering eg dedicated account handler, 24/7 emergency response phone/online support etc. The buyer can also assess previous issues that the supplier has had and how they were handled.
Making the decision
The buyer should evaluate the criteria and give each a score
. If a team of stakeholders are being used to carry out the evaluation, then they should also establish a score for each supplier. where some criteria are more important than others, weightings can be used to alter the score accordingly. The scores can then be totalled to show which supplier has the highest and has therefore secured the contract.
