L4M1 L01

Question 1

Definitions of procurement

Answer 1

STRATEGIC function that involves a high-level of skill (includes: added value, inventory, logistics, purchasing, quality, waste management, etc)

Question 2

Definition of purchasing

Definition of Supply

Answer 2

PURCHASING: act of physically ordering and buying

SUPPLY: Infrastructure which ensures products /services get from the supplier to the customer

SUPPLY CHAIN: ENCOMPASSES all organisations and activities associated with the flow and transformation of goods from the raw materials stage, through to the end used, as well as the associated information flows.

Question 3

Definition of Expediting

Answer 3

Process involved in the progress of an order to ensure stock is received as quickly as possible

Question 4

Fixed vs variable costs

Answer 4

Fixed - e.g. insurance, rent on an office or factory

variable - linked to the output of the business e.g. raw materials, haulage costs

Question 5

What are examples of capital purchases?

Answer 5

Machinery, buildings or land - one-off purchases

Question 6

What are Sundry items?

Answer 6

Miscellaneous goods or services, usually of low value. e.g. These expenses are unusual and random and does not fit in usual categories

Question 7

Describe the types of sectors

Answer 7

Primary - industry sector that extracts raw materials (products are e.g. iron)
Secondary - Sector that manufactures things (products are finished products)
Tertiary - Sector that provides services (e.g. cleaning service)
extra: Production organization - an org that makes or manufactures products

Question 8

Highlight the 13 steps of the procurement cycle

Answer 8

1 - Understand the need
2- Market / commodity (Define the need - specs)
3 - Develop strategy (make vs buy)
4- Pre-procure (Develop strategy e.g. national / global)
5 - Develop document (PQQ, spec, contract terms)
6- Source the market (Supplier selection to..)
7- Issue ITT / RFQ (assess suppliers)
8 - Bid/ tender
9 - Contract award
10- Warehouse logistics
11 - Contract performance
12 - SRM & SC management
13 - Asset management (eolife / lessons learned)

Question 9

Kralijic matrix : what is it and what for

Answer 9

Matrix that helps manage the supplier relationship associated with each type of procurement. Suppliers are mapped according to its products risk and cost impact, and the matrix defines how these should be managed, if closely or not for example. e.g. 
Classified as:
Strategic suppliers
Leverage suppliers
Routine suppliers
Bottleneck Suppliers

Question 10

Difference between CAPEX and OPEX (two types of budget)

Answer 10

CAPEX - budget relates to capital expenditure (e.g. capital purchases - land, machinery, etc)
OPEX - budget relates to operations expenditure (e.g. rent, raw materials, salary, insurance, transport)

Question 11

What are the 5 rights and why do people use it?

Answer 11

PQPQT - Right: price, quality, place, quantity & time
It can be used to help achieve value for money when sourcing and purchasing, writing contracts and negotiating with suppliers

Question 12

ISO 9001

Answer 12

International Standard for quality that helps companies effectively document and maintain an efficient quality system.

Question 13

Importance and types of specs

Answer 13

Conformance specs - sets out what the product or service will consist of (not disclosed what the product will be used for) e.g., food or chemicals for a formula. e.g. fastenings for a product

Performance specs (less complex) - Outlines what the product / service is to do or achieve. e.g. includes output requirements, tolerances and any functions it might have to achieve. e.g. packaging for a product that needs to be safe falling from 10m.

Question 14

Types of incoterms

Answer 14

EXW - Buyer arranges collection and delivery of the goods from the supplier (adds on cost)
FCA - Free carrier (named place) - supplier delivers to destination chosen, and buyer chooses a courier to collect them and deliver
CPT - Carriage paid - Goods delivered with no official carriage bill to destination agreed. cost is absorbed in price. buyer is responsible for journey insurance
CIP - Carriage and Insurance paid. Same as previous but includes insurance
DAT - delivered at terminal - goods delivered to a port/place, and buyer arrange the rest of the journey

Question 15

Difference between TCO and TCA

Answer 15

Total cost of acquisition (TCA) - SOURCING + RECEIVING + INSTALLING - consider purchased price, quality, leadtime and carriage and insurance

Total cost of Ownership (TCO) - TCA + tooling + insurance + operation + maintenance + training + storage + disposal

Looking for the most effective TCO is ideal as it means best long-term value for money

Question 16

For a simple contract to exist and be valid, what does it need?

Answer 16

Intention, Consideration and Agreement

Question 17

An example of qualitative and quantitative KPIs

Answer 17

• Quality time: QUALITATIVE (reduce number of factory rejects) QUANTITATIVE ( reduce % of late deliveries)
• Quality quantity - QUALI ( achieve ISO), QUANTI (increase n of orders received with correct qties)
• Quality Place - QUALI (reduce materials wastage during manufacturing) QUANTI(increase % of deliveries to correct location)

Question 18

Key areas and actions to achieve VALUE FOR MONEY

Answer 18

Exchange rates - e.g. agree a fixed rate to get the best value for money
Environmental - e.g. sustainability policy. bad practices can result in customer’s rejection
Freight Cost - e.g. Consider cost of transport and quoted incoterms
Maintenance costs -e.g. is maintenance included? consider its costs
Packaging - e.g. returnable, recyclable, single-use packaging: what’s the best value for money
Payment terms - e.g. longer ones give more time to organisations to keep their money in the bank, gaining interests, improving cash flow for example.
Place - Deliveries to right place to avoid add costs of transport, for example
Product / Service price - price is not all but should also be considered alongside other factors

Question 19

What are the 3 types of procurement?

Answer 19

direct procurement, indirect procurement, and services procurement

Question 20

SCM - what is it and what are its aims?

Answer 20

Supply Chain Management - it aims to reduce costs, improve value and reduce risk. Achieving a process in the most effective, efficient and ethical way.
Might include managing customer relationships as well.