L3.2 Analyse the impact of organisational policies and procedures on proc. and supply

Question 1

5 main topics included in Procedures for procurement and supply
1. Responsibilities within procurement

Answer 1

• who has the AUTHORITY to ACCEPT & PROCESS ORDERS
  » forwarding requisitions to ppl w/o authority could lead to issues with unauthorised or uncontrolled expenditure -> MAVERICK SPEND
  eg. delay in goods/services being ordered/received, incorrect goods/services may be ordered, contracting unapproved suppliers (with possible loss of reputation), financial implications like agreeing too high a cost
• who has the AUTHORITY to MAKE DECISIONS
  » RESPONSIBILITY FLOW CHARTS -> for buyers to check what they can and cannot conduct in relation to their job title
  » the flow chart shows that procedures don’t have to be lengthy written documents

!! Many org.s have systems in place to CONTROL SPEND.
eg. tech systems which deny access to ppl w/o correct responsibility, but procedures in place contribute towards efficiency and reduce risk

Question 2

5 main topics included in Procedures for procurement and supply
2. Regulations relating to competition
- competition between suppliers within proc. is healthy but has to be conducted fairly; procedures help reduce risk of unfair competition -> protecting suppliers and the economy

Answer 2

• 4 competition policies
  1. INTELLECTUAL PROPERTY
• to prevent competitors copying new ideas, registered by the inventor, for a period of time
  2. CARTELS (the most damaging of all anti-competitive practices)
• to PREVENT PRICE FIXING, limiting supply and agreements to avoid competition within the marketplace
• illegal in many countries and org.s can face large fines
  3. MERGER CONTROL
• to control mergers within biz to maintain competition
  4. MONOPOLIES
• to avoid one org. having sole control of the market (no competition)

Case study: Competition Commission fines ADM, Ajinomoto and others in lysine cartel

• Independent regulatory bodies, that supervise utility industries
  ie. in the UK, Ofcom (communications regulator), Ofgem (gas and electricity markets regulator), Ofwat (water and wastewater services reg), ORR (rail and road reg)

Question 3

5 main topics included in Procedures for procurement and supply
3. Levels of delegated authority

Answer 3

• a hierarchical chart within a proc. function could be used to show how much VALUE an individual has the authority to approve & who to approach for approval if required,
  ie. which individuals report to whom and who may delegate authority
• REPORTING STRUCTURES within an org.

Question 4

5 main topics included in Procedures for procurement and supply
4. Responsibilities for the stages of the sourcing process

Answer 4

• procedures may state which ROLES & RESPONSIBILITIES are allocated to which members of the proc. function for which part of the sourcing process (CIPS Procurement Cycle)
  eg. a person whose sole responsibility is to research the market, or supplier evaluation

Question 5

5 main topics included in Procedures for procurement and supply
5. Invoice clearance and payment

Answer 5

• procedures to ensure SUPPLIER INVOICES are cleared and passed for payment
• procedures will identify WHO has the authority to check invoices & what to do if the invoices DON’T MATCH the goods/services received
• AUDITORS normally stipulate that the individual authorising the purchase is not also responsible for approving suppliers’ invoices
• invoices should be checked for: quantity received, price invoiced, tax rate applied, transport costs, payment terms

!! **Invoices should be checked against the PURCHASE ORDER and GOODS RECEIVED NOTE.*

Question 6

The use of procurement policies, procurement strategies and procurement manuals
1. Proc. Policies + 8 aspects that can be included
2. Proc. Strategies + 11 aspects that the strategies may be based on (incl. JIT)

*Strategy -> Policies -> Procedures
*Strategy = a long-term plan of action to meet missions and visions

Answer 6

Procurement policies and manuals are derived from an org’s STRATEGY and can include:
1. competition
2. ethics
3. KPIs
4. quality
5. supplier appraisal
6. supplier evaluation
7. sustainability
8. transparency

Procurement strategies outline what the proc. dept must ACHIEVE in an agreed TIMESCALE; keep in line with the entire org’s objectives and contribute to the success/failure of an org. May be based on:
1. achieving cost reductions
2. adding value within the supply chain
3. encouraging local supply
4. environmental issues
5. ethical improvements
6. fair trade
7. Just-in-Time (JIT) implementation
= a philosophy used in MANUFACTURING that is based on suppliers delivering goods at the point that they are NEEDED. It aims to REDUCE INVENTORY COSTS & REDUCE WASTE in the supply chain.
8. improved quality
9. reducing the amount of suppliers
10. achieve sustainable competitive advantage
11. innovation

!! Strategies must constantly EVOLVE in line with MARKET FORCES.
eg. if an org’s strategic supplier, who was previously the only one that met the policy requirements, went out of biz then the buyers would quickly have to amend their strategy and policy to allow other suppliers to bid for the contract.
- w/o this change in strategy the buyer would have no suitable suppliers to work with.
- Potential influences on proc. strategy: operations, forecasts, competition, org. objectives, economy, budgets

Question 7

The use of procurement policies, procurement strategies and procurement manuals
3. The Lewin change model
4. Use of procurement manuals

Case study: Turkcell (Turkish telecom company) implements NEW proc. strategies and policies & raises the status of proc. and supply -> benefited from close-knit relationships with its suppliers, increased success

Answer 7

• proc. strategies may be affected by a SIGNIFICANT EVENT, hence a need for a STEP CHANGE (= a radical and fast change, often a reaction to UNEXPECTED factors)
• Lewin change model: unfreeze -> change -> refreeze

!! There are two types of change: STEP CHANGE and INCREMENTAL CHANGE
- incremental changes = slow and gradual changes in strategy {as org. is constantly reacting to events around it}; less likely to cause problems within workplace than step changes

Use of procurement manuals
- policies designed to ensure that proc. is done legally
- should allow no room for misinterpretation; should offer real protection by preventing potentially damaging actions
- COMPLIANCE should be compulsory

Question 8

The involvement of Internal functions and personnel in the procurement process
1. 6 functions and how they might be involved in the sourcing process

*proc. functions may interact with internal functions in various ways
eg. when colleagues in other depts identify a need and raise a requisition

Answer 8

1. Procurement
   - supplier evaluation, info gathering, specification collation, RFQ/ITT creation and evaluation, purchase order placing, contract mgmt
2. Sales
   - guide proc. on stakeholder needs, suggest sales figures to enable correct volumes to be secured
3. Finance
   - set budgets, payment terms and credit limits
   - analyse potential suppliers’ financial performance
4. Human resources
   - ensure staff are treated ethically and that working conditions are acceptable
5. Operations
   - help with testing, cost models, overhead costs, training that may be required, bring in new biz to increase volume
6. Research and design
   - create specifications, give input on components from functionality and quality perspective, help with cost reduction ideas

Question 9

The involvement of Internal functions and personnel in the procurement process
2. 4 “benefits” of interactions between proc. function with other internal functions

Answer 9

1. REDUCING RISK
   - thereby avoiding the cost implications of an incorrectly sourced product
   eg. operations dept, which physically handles the product, can advise what specification would most suit their needs and what style of packaging would fit best within the stores dept
   eg. sales, finance, research and design depts
2. ECONOMIES OF SCALE
   - if sales dept or end users are involved in ACCURATELY FORECASTING the requirements, procurement may be able to negotiate better prices (secure discount) through BULK BUYING -> price per unit decreases
   - however, buyer needs to consult warehouse and STORES DEPT to ensure availability of ADEQUATE STORAGE CAPACITY
3. CHANGES TO THE PRODUCT
   - buyers should liaise with sales dept to understand how changes to a product (eg. become obsolete/ amended will affect stakeholders
   » can be established if the product revision will be acceptable or whether buying team needs to research other suppliers to match the existing product specification
   - particularly relevant in retail sector
4. EFFECT ON ORGANISATIONAL BUDGETS
   - finance dept creates and agrees the org. budgets which proc. managers have to adhere to, and regularly report to finance dept
   - within the PUBLIC SECTOR, proc. function must show VALUE FOR MONEY is being achieved for the general public (stakeholders) who pay towards the services