L4M1 L01 Flashcards
Definitions of procurement
STRATEGIC function that involves a high-level of skill (includes: added value, inventory, logistics, purchasing, quality, waste management, etc)
Definition of purchasing
Definition of Supply
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.
Definition of Expediting
Process involved in the progress of an order to ensure stock is received as quickly as possible
Fixed vs variable costs
Fixed - e.g. insurance, rent on an office or factory
variable - linked to the output of the business e.g. raw materials, haulage costs
What are examples of capital purchases?
Machinery, buildings or land - one-off purchases
What are Sundry items?
Miscellaneous goods or services, usually of low value. e.g. These expenses are unusual and random and does not fit in usual categories
Describe the types of sectors
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
Highlight the 13 steps of the procurement cycle
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)
Kralijic matrix : what is it and what for
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
Difference between CAPEX and OPEX (two types of budget)
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)
What are the 5 rights and why do people use it?
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
ISO 9001
International Standard for quality that helps companies effectively document and maintain an efficient quality system.
Importance and types of specs
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.
Types of incoterms
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
Difference between TCO and TCA
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
For a simple contract to exist and be valid, what does it need?
Intention, Consideration and Agreement
An example of qualitative and quantitative KPIs
- 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)
Key areas and actions to achieve VALUE FOR MONEY
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
What are the 3 types of procurement?
direct procurement, indirect procurement, and services procurement
SCM - what is it and what are its aims?
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.
