l4m1 chapter 1.1 Flashcards
What is procurement and what does it involve?
Procurement is the strategic business management function that ensures identification, sourcing, access and management of the external resources that an organization needs or may need to fulfill its strategic objectives.
Procurement exists to explore supply market opportunities and to implement resourcing strategies that deliver the best possible supply outcome to the organization, its stakeholders and customers.
Procurement manages supply chain risks through the effective negotiation of contracts, cost and price models, quality and other essential supply characteristics.
it involves the following aspects.
- added value
- cost
- inventory
- logistics
- purchasing
- quality
- supply
- waste management
what is purchasing
purchasing is the act of physically buying a good or service. this is usually carried out by organizational buyers (Those buyers of goods and services for the specific purpose of industrial or agricultural production or for use in the operation or conduct of a plant, business, institution, profession or service.)
What is supply?
supply is the infrastructure that ensures that products or services get from the supplier to the customer.
What are the different types of organisational costs? Explain.
- direct- costs that are directly associated with a project (bricks, mortar, labour)
- indirect- costs that are not directly associated with the project (rental of head office, salaries of support staff, telephone plan cost)
- fixed- costs that do not vary with the level of production (rent, utilities, manager salaries)
- variable- costs that vary with the levels of production (raw materials, hourly staff wages, haulage and transport costs)
What is the Relationship between procurement, purchasing and supply?
purchasing and supply are functions of procurement, with out procurement there can be no purchasing, without purchasing there can be no supply.
What are the costs within an organisation usually comprised of?
- money
- time
- effort
- material
- opportunity
What are the total costs within an organisation?
the total costs comprises of fixed and variable costs.
What is the breakdown of typical costs within an organization?
- capital purchases
- insurance
- marketing
- raw materials
- r&d
- salaries and pension
- services
- sundry items
- utilities
- training
- vehicles and transport
breakdown of organizational costs- capital purchases
remember CCARRRIBBEE
capital purchases should be undertaken by a procurement professional so they can do the following; ▪compare buy or lease options ▪calculate currency differences ▪assess ethical requirements ▪review quality and standards ▪review packaging options ▪research total life cost ▪investigate transport ▪be involved in preparing specifications ▪benchmark prices ▪ensure assets are fit for purpose ▪evaluate potential suppliers
breakdown of organizational costs- marketing
▪ source promotional items
▪ensuring costs are low as possible when booking stands and arranging transport and rentals
breakdown of organizational costs-raw materials
▪accounts for 60% of expenditure in a typical organization.
▪the role of the procurement department is important in sourcing at a low cost (economies of scale) and inventory management at a low cost.
▪inventory costs should be as low as possible without compromising the stock.
breakdown of organizational cost- research and development
▪sourcing prototypes or new materials for trials within the organization
▪to ensure value is achieved
▪ uses existing relationships to supply what is needed at a fair cost
breakdown of organizational cost- salaries
▪lower overall costs within the organization which will enable the employer to offer staff higher salaries than if cost were higher
breakdown of organizational costs- sundries
▪buyers within an organization will have knowledge
breakdown of organizational costs- training
through the negotiation of professional development courses, buyers may reduce the cost through negotiation